Why is this tendency toward
E V h R Y T H I N G B A D I S G O O D F O R Yo u
I 57
increased complexity happening i n the fi rst place ? It i s a
truth nearly universally acknowledged that pop culture
caters to our base instincts; mass society dumbs down and
simplifies; it races to the bottom. The rare flowerings of
"quality programming" only serve to remind us of the over­
all downward slide. But no matter how many times this re­
frain is belted out, it doesn't get any more accurate. As we've
seen, precisely the opposite seems to be happening: the sec­
ular trend is toward greater cognitive demands, more depth ,
more participation. And if you accept that premise, you ' re
forced then to answer the question : Why? For decades, the
race to the bottom served as a kind of Third Law of
Thermodynamics for mass society : all other things being
equal, pop culture will decline into simpler forms. But if
entropy turns out not to govern the world of mass society­
if our entertainment is getting smarter after all-we need a
new model to explain the trend .

…

Or, we could lose audience by inserting little "tricks"
that cause the loss of audience. . . . Thought, that's tune­
out, education, tune-out. Melodrama's good, you know,
a little tear here and there, a little morality tale, that's
good. Positive. That's least objectionable. It's my job to
keep my 32, not to cause any tune-out a priori in terms
of ads or concepts, to make sure there's no tune-out in the
shows vis-a-vis the competition.
LOP is a pure-breed race-to-the-bottom model : you cre­
ate shows designed on the scale of minutes and seconds,
with the fear that the slightest challenge-"thought, " say, or
"education"-will send the audience scurrying to the other
networks. Contrast LOP with the model followed by The
Sopranos-what you might call the Most Repeatable Pro-
162
ST E V E N J O H N SO N
gramming model. MRP shows are designed on the scale of
years, not seconds.

…

The story of the last thirty years of
popular culture is the story of rising complexity and in­
creased cognitive demands, an ascent that runs nicely par­
allel to-and may well explain-the upward track of our IQ
scores. But there are hidden costs to the Sleeper Curve. It's
cruci al that we abandon the Brave New World scenario
where mindless amusement always wins out over more chal­
lenging fare , that we do away once and for all with George
Wi l l 's vision of an "increasingly infantilized society. " Pop
E V E R Y T H I N G B A D I S G O O D F O R Yo u
1 85
culture is not a race to the bottom, and it's high time we
accepted-even celebrated-that fact. But even the most
salutary social development comes with peripheral effects
that are less desirable.
The rise of the Internet has forestalled the death of the
typographic universe-and its replacement by the society
of the image-predicted by McLuhan and Postman. Thanks
to e-mail and the Web, we're readi ng text as much as ever,
and we're writing more.

We saw in chapter 4 that the economist’s concept of externalities gives us a powerful tool to appreciate the risks of environmental damage, and externality charges give us a solution. Many—perhaps most—economists understand the risks of environmental damage and want action to preserve the environment.
But the link between trade and environmental damage just doesn’t stand up to close scrutiny. There are three reasons for concern. The first concern is of a “race to the bottom”: companies rush overseas to produce goods under cheaper, more lenient environmental laws, while hapless governments oblige them by creating those lenient laws. The second is that physically moving goods around inevitably consumes resources and causes pollution. The third worry is that if trade promotes economic growth, it must also harm the planet. While each has some initial plausi-bility, the idea that trade is bad for the environment is based on weak thinking and little evidence.

…

But what about investment in poor
countries? The environmentalist Vandana Shiva speaks for many when she declares that “pollution moves from the rich to the poor. The result is a global environmental apartheid.” Strong words—but are they true?
In theory, they might be true. Companies that can produce goods more cheaply will be at a competitive advantage. They can also move around more easily in a world of free trade. So the
“race to the bottom” is a possibility.
Then again, there are reasons to suspect that it’s a fantasy.
Environmental regulations are not a major cost; labor is. If American environmental standards are really so strict, why do the most pollution-intensive American firms spend only 2 percent of their revenues on dealing with pollution? Most spend much less. When companies move abroad they are seeking cheap labor, not a pollution haven.

…

Even if it was possible to save some costs by cutting environmental corners, many firms build factories everywhere in the world using the same latest, cleanest technology from the developed world, simply because that kind of standardization itself saves costs. As an analogy: if ten-year-old computer chips were still produced in bulk, they would be simpler and cheaper to make than modern chips, but nobody bothers any more. It’s now hard to buy an old computer even if you want to. And these arguments leave aside the possibility that firms want to offer high environmental standards to please their workers and their customers.
So . . . a “race to the bottom” is possible in theory; but there are also good grounds for doubting its existence. So leaving theory to one side, what are the facts? First, that foreign investment in
• 215 •
T H E U N D E R C O V E R E C O N O M I S T
rich countries is far more likely to go into polluting industries than foreign investment in poor countries. Second, foreign investment in polluting industries is the fastest growing segment of foreign investment coming into the United States.

They are just following rules. But this rigid application of rules, in the absence of common deposit insurance, may make it even riskier for depositors to keep their money in the banks of a weak country: it may exacerbate the problem of divergence.
REGULATORY RACES TO THE BOTTOM
Europe not only allowed capital to flow freely within its borders but also financial firms and products—no matter how poorly they are regulated at home.
The single-market principle for financial institutions and capital, in the absence of adequate EU regulation, led to a regulatory race to the bottom, with at least some of the costs of the failures borne by other jurisdictions. The failure of a financial institution imposes costs on others (evidenced so clearly in the crisis of 2008), and governments will not typically take into account these “cross-border costs.”

…

The failure of the eurozone to create a true stability framework has thus contributed to inequality.
The EU (and this analysis thus goes beyond the eurozone) must adopt two further sets of policies: First, it needs to limit the race to the bottom, the kind of tax competition that worked so well for a few countries like Luxembourg but at the expense of others. This is a real example of an externality—of an action by one country that imposes harms on others. And yet Europe has failed to take adequate action, partially because many in Europe are enamored of the idea of low taxes and a small state, and this kind of race to the bottom suits them fine.
Secondly, given the easy mobility around the European Union, the major responsibility for redistribution must lie at the EU level.39 The EU should follow the United States in levying taxes based on citizenship, wherever individuals are domiciled or resident.

…

The failure of a financial institution imposes costs on others (evidenced so clearly in the crisis of 2008), and governments will not typically take into account these “cross-border costs.”
Indeed, especially before the 2008 global financial crisis, each country faced pressures to reduce regulations. Financial firms threatened that they would leave unless regulations were reduced.14
This regulatory race to the bottom would have existed within Europe even without the euro. Indeed, the winners in the pre-2008 contest were Iceland and the UK, neither of which belong to the eurozone (and Iceland doesn’t even belong to the EU). The UK prided itself on its system of light regulation, which meant essentially self-regulation, an oxymoron. The bank managers put their own interests over those of shareholders and bondholders, and the banks as institutions put their interests over those of their clients. The UK’s Barclays bank confessed to having manipulated the market for LIBOR, the London interbank lending rate upon which some $350 trillion of derivatives and other financial products are based.15
Still, the eurozone was designed with the potential to make all of this worse.

“COMPETITION IN LAXITY”
Economists describing how regulators competed for “customers” by promising to be laxer in supervision coined two of the most telling phrases to come out of the S&L debacle: “competition in laxity” and “race to the bottom.” The novel aspect is that economists endorsed these pejorative terms because the race was toward greater deregulation. In the early 1980s, economists knew that regulation was the problem, so anything that reduced regulation was desirable. Richard Pratt shared this mindset when President Reagan appointed him Bank Board chairman in 1981.
FOR THE BANK BOARD, THE RACE TO THE BOTTOM WAS A SHORT ONE
The Bank Board was at the bottom of the federal financial regulatory heap before Pratt’s deregulation and desupervision. Jim Ring Adams (1990, 40) aptly described it as “the doormat” of federal regulators.

…

And, in fact, the agency did not take effective action against any control fraud during Pratt’s tenure. Indeed, the agency took few enforcement actions. The goodwill mergers and the wave of new entrants that Pratt encouraged diverted critical supervisory resources into (non)resolutions at precisely the time they were desperately needed to counter the wave of control frauds.
TEXAS AND CALIFORNIA—THE STATES THAT WON THE RACE TO THE BOTTOM
Another term for “competition in laxity” was “the race to the bottom.” S&Ls could change freely from a federal to a state charter (the permission from the government to run an S&L) and still be insured by the FSLIC. The charter determined what the S&L could invest in. Texas led the race by deregulating in the 1970s, and California followed the lead. Many federally chartered S&Ls in those states converted to state charters.

…

Texas had the equivalent of a “most favored nation” clause in its charters that allowed Texas-chartered S&Ls to do whatever federally chartered ones could, so the rush to convert to federal charters was greatest in California. California responded to the Garn–St Germain Act with the Nolan Act (named after its sponsoring senator, the notably corrupt and soon-to-be-convicted Pat Nolan). The Nolan Act became effective on January 1, 1983. It won the race to the bottom by going directly to the bottom. A California-chartered S&L could invest 100 percent of its assets in anything (with the commissioner’s approval).
Despite Nolan’s corruption, this was not a conspiracy, but a bungled mess of epic proportions. No one was clever enough to design this disaster. The conversion of large numbers of California-chartered S&Ls into federal ones caused the state legislature and the industry to push for immediate adoption of the Nolan Act.15
A similar dynamic occurred in Texas.

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No Is Not Enough: Resisting Trump’s Shock Politics and Winning the World We Need
by
Naomi Klein

Rather than hope that Trump is going to magically transform into Bernie Sanders, and choose this one arena in which to be a genuine advocate for anyone who isn’t related to him, we would do far better to ask some tough questions about how it’s been possible for a gang of unapologetic plutocrats, with open disdain for democratic norms, to hijack an issue like corporate free trade in the first place.
The Race to the Bottom
Trump has made trade deals a signature issue for two reasons. The first, on full display that day at the White House, is that it’s a great way to steal votes from the Democrats. The right-wing pundit Charles Krauthammer—no fan of unions—declared on Fox News that Trump’s cozy union summit was a “great act of political larceny.”
The second reason is that Trump—who we know believes his own super-negotiator PR—has said he can negotiate better deals than his predecessors.

…

What Trump’s admiration for Puzder suggests is that his real plan for luring back manufacturing is to suppress rights, wages, and protections to such a degree that working in a factory will be a lot like working at Hardee’s under Andrew Puzder. In other words, it’s yet another plan to take from the vulnerable to benefit the already outrageously rich.
What we are witnessing is not a silver lining of any sort. It’s the push to the finish line in the “race to the bottom” that opponents of these corporate trade deals always feared.
Yes, It’s Possible to Make Bad Trade Deals Worse
Trump is not planning to remove the parts of trade deals that are most damaging to workers—the parts, for instance, that prohibit policies which are designed to favor local, over foreign, production. Or the parts that allow corporations to sue national governments if they introduce laws—including laws designed to create jobs and protect workers—that businesses deem to be unfairly cutting into their profits.

…

Teamsters and Turtles—Together at Last!
One area of concern was how these deals were leading to devastating job losses, leaving behind rust belts from Detroit to Buenos Aires, while companies such as Ford and Toyota looked for ever-cheaper places to produce. But for the most part, our opposition was not grounded in Trump-style protectionism; it was trying to stem the beginning of what already looked like a race to the bottom, a new world order that was negatively impacting workers and the environment in every country. We were arguing for a model of trade that would start with the imperative to protect people and the planet. That was crucial then—it’s urgent now.
The movement was even starting to win. We defeated the proposed Free Trade Area of the Americas. We brought World Trade Organization negotiations to a standstill.

In 1830, the Massachusetts state legislature decided that companies did not need to be engaged in public works to be awarded the privilege of limited liability. In 1837, Connecticut went further and allowed firms in most lines of business to become incorporated without special legislative enactment.
This competition between the states was arguably the first instance of a phenomenon that would later be dubbed “a race to the bottom,” with local politicians offering greater freedom to companies to keep their business (just as they would much later dangle tax incentives in front of car companies to build factories in their states). All the same, it is worth noting that the states gave away these privileges grudgingly, often ignoring the Dartmouth College ruling and often hedging in “their” companies with restrictions, both financial and social.

…

By 1901, two-thirds of all American firms with $10 million or more of capital were incorporated in the state, allowing New Jersey to run a budget surplus of almost $3 million by 1905 and paying for a rash of new public works. Inevitably, other states fought back. Virginia turned itself into what one legal treatise called a “snug harbour for roaming and piratical corporations.” The New York legislature was forced to enact a special charter for the General Electric Company to prevent it from absconding to New Jersey. But the big winner of this particular “race to the bottom” would be Delaware. By the time the Great Depression struck, the state had become home to more than a third of the industrial corporations on the New York Stock Exchange: twelve thousand companies claimed legal residence in a single office in downtown Wilmington.21
Most of the other industrial trusts converted to holding companies, too. They, unlike Rockefeller, often did so at the instigation of the most powerful trust of them all, the “money trust,” as Congressman Charles Lindbergh dubbed the masters of Wall Street.

…

A FRANCHISE UNDER THREAT
The trouble with all these economic forecasts is that they ignore a decisive variable: politics. A persistent theme of this book has been the jostling for power between the company and government. The balance has unquestionably swung in the company’s favor. The modern firm is not in the same position as the East India Company, which had to go cap in hand to parliament every twenty years to renew its charter. Companies have often profited from “races to the bottom” by forcing governments and American states to compete for their favors. They have also encroached on the prerogatives of nation-states and embedded themselves in the body politic: think of the effect of corporate advertising or modern corporate control of the media. Companies have sometimes been able to outfight even the most powerful governments: IBM survived the American government’s biggest antitrust case of the 1970s; Microsoft seems to have thwarted the biggest assault of the 1990s.

See the 2007 research paper “Marketing actions can modulate neural representations of experienced pleasantness” by researchers at Caltech and Stanford.
13. These examples are taken from Jonah Lehrer’s book How We Decide (Houghton Mifflin, 2009).
14. Find out more on Itamar Simonson’s research in the 1993 article “Get closer to your customers by understanding how they make choices.”
9. Marketing and advertising on the social web
The problems facing interruption marketing
Interruption marketing is a race to the bottom
For the past 100 years, marketers have mostly relied on interruption marketing to get their message across, and viewed each new technology as a new way to interrupt people from what they were currently doing to get them to consume their message instead. Our TV programs are interrupted by ads. Our concentration while driving is interrupted by ads. Our magazine stories are interrupted by ads.

…

We are being bombarded by more and more competing information, yet our capacity for processing and remembering this information remains the same. The increased competition for that attention means marketers must increase the frequency of their communication, exacerbating the problem. We’re seeing advertising appear in more and more unusual places. No one owns this problem and so it gets worse and worse.1 Interruption marketing is a race to the bottom.
The most common way for marketers to increase their chances of being noticed is to increase the frequency of their campaigns. More people are likely to notice it, but it creates immense volumes of noise. On average, you need to run an ad 27 times before someone remembers it: Only one out of every nine ads is noticed, and people need to see the ad three times to remember it, so it takes 27 impressions for it to sink in.2
People no longer trust marketers
One clear trend over the past 50 years is that people are more wary of advertising, and trust businesses less than they used to.3 In fact, this is so prevalent that researcher Dan Ariely has found that mistrust in marketing information negatively colors our entire perception of a product, even when we have direct experience to the contrary.

…

Starting with small requests for behavioral change often eventually leads to attitudinal change.
People will increasingly turn to their friends for information
The amount of information accessible to us is increasing exponentially, but our capacity for processing ideas and memory will remain the same. In a world of too much information, marketing and advertising based on interrupting people, or trying to shift their attention from something else, is a race to the bottom.
In this information rich world that we have created, people will increasingly turn to their friends for advice. Marketing will need to focus activities on gaining permission to market to people by being credible, trustworthy, interesting, and useful, and by marketing to small, connected groups of friends.
The next few years
Rebuilding your business around people is not a choice
Facebook, Twitter, and Zynga are overwhelming evidence of the shift to a web built around people.

decision, online activists worried it set a precedent that would allow any country to impose its laws on the online world. “We now risk a race to the bottom,” said Alan Davidson, an attorney with the Center for Democracy and Technology who has since become the top lobbyist at Google. “The most restrictive rules about Internet content—influenced by any country—could have an impact on people around the world.”11
This is certainly worth worrying about, but it could be seen as a very American view. In Western Europe, voters tend to see regulations on commerce as a way to protect their rights rather than limit them; generally speaking, they tend to want freedom from the market, rather than for it. So they worry about another kind of race to the bottom, where the least restrictive rules in the world undermine their laws—on hate speech, consumer protection, and especially privacy.

…

Sites that use pirated material to draw an audience drag down the price of online advertising to the point where companies that produce new material have trouble competing. Media companies that sell products online have to lower prices in order to compete with pirated versions of those same products sold by companies that bear none of the production costs. By making it essentially optional to pay for content, piracy has set the price of digital goods at zero. The result is a race to the bottom, and the inevitable response of media companies has been cuts—first in staff, then in ambition, and finally in quality.
This devaluation could also hurt the Internet, since professional media provides much of the value in a broadband subscription. A 2010 study by the Pew Research Center’s Project for Excellence in Journalism found that more than 99 percent of blog links to news stories went to mainstream media outlets like newspapers and networks.15 File-sharing services are filled with copyrighted music.16 Seven of the ten most popular clips in YouTube history are major-label music videos.17 Amid the Internet’s astonishing array of choices, statistics show that most consumers continue to engage with the same kind of culture they did before—only in a way that’s not sustainable for those who make it.

…

Right now, cable television is an expensive, inefficient system that encourages competition for quality. In almost every way, it’s the exact opposite of the more efficient Internet, where more content is pirated than purchased and the producers of shows are pressured into giving them away before another company can do it for them. Competition concerns cost and Google search ranking, and the winners are sites like the Huffington Post. If cable worked like the Internet, the result would be a race to the bottom: shows that are free to watch, cheap to make, and easy to forget.
The company that represents the greatest threat to television may be Google. In May 2010, the search giant announced Google TV, a platform that brings the Internet to a TV screen. As with Boxee, that means users can easily download video illegally as well as buy it. And as with Boxee, the conglomerates that own television channels are less than thrilled with that idea.

Why, the argument went, should private sector workers with comparatively meagre pensions subsidize the generous settlements of the public sector? There was no doubt that there had been a collapse in private sector pension provision. At the beginning of 2012, the Association of Consulting Actuaries warned that nine out of ten private sectordefined benefit schemes were closed to new entrants. But what was being proposed was a race to the bottom; public sector pensions should be dragged down, not private sector pensions dragged up.
The majority of public sector workers saw this rhetoric for what it really was: on 30 June 2011, hundreds of thousands of teachers and civil servants went on strike. But with the Government still refusing to make significant concessions, trade union ballots across the public sector delivered overwhelming support for industrial action.

…

The workers, with no means of defending themselves from this calamity, resorted to pelting managers with apples and oranges. 'It's a disgrace, I feel as though I've been used,' said one."
It is not just agency and temporary workers who suffer because of job insecurity and outrageous terms and conditions. Fellow workers are forced to compete with people who can be hired far more cheaply. Everyone's wages are pushed down as a result. This is the 'race to the bottom' of pay and conditions.
It might sound like a throwback to the Victorian era, but this could be the future for millions of workers as businesses exploit economic crisis for their own ends. In a document entitled The Shape of BusinessThe Next Ten Years, the Confederation of British Industry (CBI)-which represents major employers--claimed that the crash was the catalyst for a new era in business.

…

The real reasons for the strike, carefully obscured by the mainstream media, shed light on some of the complexities underlying the workingclass anti-immigration backlash in modem Britain. The Lindsey refinery's employer, IREM, had hired cheap, non-unionized workers from abroad. Not only did this threaten to break the workers' union, italso meant everyone else's wages and conditions would be pushed down in a 'race to the bottom'.
'We've got more in common with people around this world than with the employers who are doing this to us,' said Keith Gibson, one of the leaders of the strike and a member of the Trotskyist Socialist Party. BNP figures who tried to jump on the bandwagon were barred from the picket line. The demands of the strike committee included the unionization of immigrant labour, trade union assistance for immigrant workers and the building of links with construction workers on the continent.

Federal Reserve vice chairman, worrying that international outsourcing will cause unprecedented dislocations for the U.S. labor force; Martin Wolf, the Financial Times columnist and one of the most articulate advocates of globalization, expressing his disappointment with the way financial globalization has turned out; and Larry Summers, the Clinton administration’s “Mr. Globalization” and economic adviser to President Barack Obama, musing about the dangers of a race to the bottom in national regulations and the need for international labor standards.
While these worries hardly amount to the full frontal attack mounted by the likes of Joseph Stiglitz, the Nobel Prize–winning economist, they still constitute a remarkable shift in the intellectual climate. Moreover, even those who have not lost heart often disagree vehemently about where they would like to see globalization go.

…

The Compact aims to transform international corporations into vehicles for the advancement of social and economic goals. Such a transformation would benefit the communities in which these corporations and their affiliates operate. But, as Ruggie explains, there would be additional advantages. Improving large corporations’ social and environmental performance would spur emulation by other, smaller firms. It would alleviate the widespread concern that international competition creates a race to the bottom in labor and environmental standards at the expense of social inclusion at home. And it would allow the private sector to shoulder some of the functions that states are finding increasingly difficult to finance and carry out, as in public health and environmental protection, narrowing the governance gap between international markets and national governments.7
Arguments on behalf of new forms of global governance—whether of the delegation, network, or corporate social responsibility type—raise troubling questions.

…

Bank regulators with a more realistic sense of the efficacy of Basel rules’ impact on capital adequacy or the quality of U.S. credit rating practices would have paid more attention to the risks that their financial institutions at home were incurring.
Our reliance on global governance also muddles our understanding of the rights of nation states to establish and uphold domestic standards and regulations, and the maneuvering room they have for exercising those rights. The worry that this maneuvering room has narrowed too much is the main reason for the widespread concern about the “race to the bottom” in labor standards, corporate taxes, and elsewhere.
Ultimately, the quest for global governance leaves us with too little real governance. Our only chance of strengthening the infrastructure of the global economy lies in reinforcing the ability of democratic governments to provide those foundations. We can enhance both the efficiency and the legitimacy of globalization if we empower rather than cripple democratic procedures at home.

There is a recognition that low-cost countries are developing their own knowledge workers capable of achieving
global standards that were previously assumed to be out of reach by
anyone other than Western workers.
Thomas Friedman’s account of the “ﬂattening” of the world economy has been widely debated. He sees little reason to worry about
America’s middle classes being embroiled in a global race to the bottom because he focused on the race to the top. The knowledge wars
are, he believes, forcing Americans to raise their game in the competition for the best and most innovative ideas, leading him to conclude,
America, as a whole, will do ﬁne in a ﬂat world with free trade—
provided it continues to churn out knowledge workers who are able
22
The Global Auction
to produce idea-based goods that can be sold globally and who are
able to ﬁll the knowledge jobs that will be created as we not only
expand the global economy but connect all the knowledge pools in
the world.

…

In an interview with economic advisors in Washington during
the Bush administration, we asked about the interests of American
Managing in the Global Auction
111
corporations in investing in the country’s workforce. We were asked to
turn off our recording equipment and in hushed voices, the two ofﬁcials described their growing misgivings about the impact of free trade
agreements working against the interests of American workers but to
the beneﬁt of American corporations. The consequences of this shift
in economic power also led Robert Scott to conclude, “This shift has
increased the global ‘race to the bottom’ in wages and environmental
quality and closed thousands of U.S. factories, decimating employment
in a wide range of communities, states, and entire regions of the United
States. U.S. national interests have suffered while U.S. multinationals
have enjoyed record proﬁts on their foreign direct investments.” 23
The ﬁnancial crash highlighted the economic catastrophe resulting
from the failure of federal authorities to regulate ﬁnancial markets,
and the global auction highlights the social catastrophe of failing to
regulate the relationship among education, jobs, and rewards.

…

This would
reduce the risks managers take and enable them to focus more on the
development of productive assets rather than inﬂating share prices or
company proﬁts for personal gain.
Governments around the world, including the U.S. administration,
also need to change the rules of the global auction. This would include
new rules for the conduct of corporations and their executives designed
to limit the race to the bottom that the reverse auction implies for many
college-educated as well as less qualiﬁed workers. International labor
A New Opportunity
159
standards would have to be reformed, allowing workers to counterbalance the power of global corporations by strengthening their rights to
act collectively across national borders.
Equally, at the same time that low-cost competition is a legitimate
facet of the global auction, the exploitation of cheap labor (including
child labor) is not legitimate and will require the introduction of a
minimum wage for all countries based on national per capita income.

‘Avoidance’ is not illegal, ‘evasion’ is illegal, but when the systems are deliberately opaque, it’s hard to tell which category they fit, though avoidance certainly goes against the spirit of the law. The second myth is that corporations have a duty to avoid tax in order to meet their obligation to maximise shareholder value. But there is no such obligation in law.
Tax havens compete with one another to attract the rich and their wealth, creating a race to the bottom (‘tax competition’) that continually pressures other countries to lower their own taxes, or at least those that most affect the rich. Escaping financial regulations also creates a race to the bottom to deregulate onshore economies. Rates of corporation tax have fallen across the rich countries since the 1970s. Companies that hide activities offshore can undercut those companies that actually do pay their tax; those that do pay may complain but, not surprisingly, many decide that if they can’t beat them, they may as well join them.

…

Up until the 1970s their returns were similar to those from shares in non-finance companies (less than 10% per year), but from then on they rose to well over 20%. That the banks chose to hand over so much of their enormous profits to shareholders at a time when they needed to build up their capital base speaks volumes about the irrationality of shareholder capitalism.
In the 1980s, governments began to extol the virtues of ‘flexible labour markets’, a brilliant euphemism for reduced protection, bargaining power and security for workers and a race-to-the-bottom for cheaper labour. In this new environment, slow growth of wages and salaries meant that aggregate demand for goods and services also grew more slowly, making it harder for companies to make a profit from investment in new capacity and products. Two things reduced or postponed the damage; first, the rise in women’s employment, which increased household income for many, and second, the dramatic expansion of consumer debt, particularly mortgages and credit cards, although eventually this depressed demand and consumption because the borrowers had to pay off the interest.

…

While they will no doubt be justified as ‘cutting red tape’, their aim is to maximise the economic and political power of international business by minimising government restrictions on their operations, whether they are for protecting public health, employment conditions or the environment, or simply for allowing governments to control their economies. The most likely – and intended – outcome is a race to the bottom in standards. The treaties also look set to extend corporations’ intellectual property rights, preventing individuals and other companies, including smaller businesses across the world, from benefiting from their innovations without paying them rent. As we saw in Parts One and Two, companies themselves typically benefit from countless freely available innovations of the commons, yet their powers to privatise their own innovations are being extended.

For if the developing
countries pay lower wages, do not protect their environment, and
have insufferably long working hours, then won’t their cheap
output eliminate our higher paying jobs, forcing us to lower our
standards and our wages? We will have to keep working harder
and longer to keep up. Firms and capital quickly migrate to where
the lowest wages and the worst working conditions exist. It will
be a ‘‘race to the bottom.’’ The one with the lowest social standard
will win and will corner the investments and export revenues.
Theoretically this seems a tough case to answer. The only
trouble is that it has no foundation in reality. The world has not
witnessed a deterioration of working conditions or wages in the
past few decades, but precisely the opposite. And the explanation
is simple. Consumers aren’t looking to buy goods from people
who are poorly paid; they just want products that are good and
as inexpensive as possible, whoever makes them.

…

They can choose to
take things easier if they feel that they are working too much;
they can pressure their employers for better conditions through
such means as unions, and the employer can review the work
situation. Each individual can opt out of certain things so as not
to feel permanently at the beck and call of others. You don’t have
to check your e-mail over the weekend, and there is no law against
turning on the answering machine.
209
Big is beautiful
In the anti-globalists’ worldview, multinational corporations
are leading the race to the bottom. By moving to developing
countries and taking advantage of poor people and lax regulations,
they are making money hand over fist and forcing other governments
to adopt ever less restrictive policies. On this view, tariffs
and barriers to foreign investment become a kind of national
defense, a protection against a ruthless entrepreneurial power
seeking to profiteer at people’s expense. The alternative is an
empire of enormous multinationals ruling the world, regardless
of what people think or want.

…

The West has to follow
suit and lower its own environmental standards in order to stay
in business. That is a dismal thesis, with the implication that
when people obtain better opportunities, resources, and technology,
they use them to abuse nature. Does there really have to be
a conflict between development and the environment?
The notion that there has to be a conflict runs into the same
problem as the whole idea of a race to the bottom: it doesn’t tally
with reality. There is no exodus of industry to countries with
poor environmental standards, and there is no downward pressure
on the level of global environmental protection. Instead, the bulk
of American and European investments goes to countries with
environmental regulations similar to their own. There has been
much talk of American factories moving to Mexico since NAFTA
was signed.

Hundreds of billions in loans were supposed to bring progress, yet the programs have never lived up to their promise. Instead, governing elites amass obscene fortunes while the poor shoulder the burden of paying off the debts. A former World Bank staffer, Steve Berkman presents an inside investigator’s account of how these schemes work to divert development money into the pockets of corrupt elites and their First World partners.
9 The Philippines, the World Bank, and the Race to the Bottom
Ellen Augustine
“Development” and “modernization” became code words for U.S. efforts to prop up the regime of President Ferdinand Marcos, with the World Bank serving as a conduit for the financing of Marcos’ dictatorship. Some 800 leaked documents from the World Bank itself tell how the Bank financed martial law and made the Philippines the test case for its export-led development strategy based on multinational corporations—with disastrous results for both democracy and economic development.
10 Exporting Destruction
Bruce Rich
Export credit agencies have quietly become the world’s largest financial institutions, backing $788 billion in trade in 2004.

…

a Liberian official asked World Bank staffer Steve Berkman, clearly expecting him to hand over a satchel full of cash. In “The World Bank and the $100 Billion Question,” Berkman provides an insider’s account of how and why the Bank looks the other way as corrupt elites steal funds intended for development aid.
• In the 1970s, the Philippines were a showcase for the World Bank’s debt-based model of development and modernization. In “The Philippines, the World Bank, and the Race to the Bottom,” Ellen Augustine tells how billions in loans were central to U.S. efforts to prop up the Marcos dictatorship, with the World Bank serving as a conduit.
• Export credit agencies have a single job: to enrich their countries’ corporations by making it easier for poor countries to buy their products and services. In “Exporting Destruction,” Bruce Rich turns a spotlight on the secretive world of ECAs and the damage they have caused in selling nuclear plants to countries that cannot manage them and pushing arms in war-torn regions

…

It is all just “business as usual,” and will continue that way until some catastrophe descends on them, by which time it will be too late to do anything about it.
POSTSCRIPT: By the time Marcos was overthrown in 1986, the foreign debt of the Philippines exceeded $28 billion, including around $675 million in debts incurred by companies run by Marcos’ cronies and guaranteed by Philippine government institutions. As Ellen Augustine notes in chapter 9, “The Philippines, the World Bank, and the Race to the Bottom,” the Philippine people are still struggling to repay debt accumulated during the Marcos era.
—S.H.
3 Offshore banking havens enable the extraction of $500 billion a year from
the Third World–a flow of dirty money that has become essential to
global elites.
Dirty Money: Inside the Secret
World of Offshore Banking
John Christensen
Kuala Lumpur, July 1985: Maybe it was the heat, or perhaps the Guinness and Courvoisier had dulled my senses, but something about what the man next to me was saying didn’t quite add up.

The Extractive Industries Transparency Initiative"
I described earlier how greater transparency would discourage corruption, making it more likely that developing countries would receive full
value for their natural resources. The advanced industrial countries can
help ensure transparency by simply saying: no one gets a tax deduction
for money spent on royalties or other payments to foreign governments
unless they fully disclose what was paid and how much of the resource
156
MAKING GLOBALIZATION WORK
in question was extracted. Without such a broad agreement, there will
continue to be a race to the bottom, and the companies and countries
most willing to engage in corrupt practices, and least willing to be
transparent, will have an advantage over the others.
2. Reducing arms sales
Even worse than corruption is the armed conflict that mineral and oil
resources finance. Again, the international community could do more to
make it more difficult and more expensive to acquire arms. We have a
responsibility to choke off supply at the source—the manufacturers of
arms who profit from this nasty business—or at least impose a heavy tax
on the sale of arms and to check the source of the money which pays
for them.22
3.

…

Just as developing countries
guarantee that they will not expropriate investments, the developed
countries where the oil companies are registered would guarantee that
any environmental damage will be fully repaired, with clear and high
standards set out for what that means.
7 Enforcement
We have described a variety of good practices, ways in which developed
countries can help the developing world ensure that citizens reap the
benefits of the resources that lie within their countries—by enhancing
transparency, discouraging bribery and corruption, and protecting the
environment. But these measures cannot and should not be left to
goodwill. The amounts of money at stake are too large, the incentives
Lifting the Resource Curse
159
for a race to the bottom too great. There must be effective enforcement. Trade agreements can be used to force "good behavior." Trade
sanctions can be used against companies and countries that engage in
unfair trade practices—and failing to subscribe to the extractive industries transparency initiative and other anti-bribery measures should be
treated as an unfair trade practice.
We can make globalization work, or at least work better, for those in
resource-rich countries.

…

But there are large barriers to entry—the development of a mine can
cost more than a billion dollars, and entails a great deal of risk. If
one company leaves, another may not fill the gap—or if it does, it may
demand even more unfavorable terms.
196
MAKING GLOBALIZATION WORK
Globalization has compounded the problems arising from the misalignment of incentives in modern corporations. Competition among
developing countries to attract investment can result in a race to the
bottom, as companies seek a home with the weakest labor and environmental laws.
As the case of Bhopal illustrates, the ability to hide behind borders makes it even more difficult to hold corporations and their officers accountable. Furthermore, the speed with which assets can be
moved from one country to another means that even if there is a
monetary judgment against a firm in one country, it may be impossible to collect.

Anthony Lilore, a thirty-year veteran of the fashion industry and an advocate for Save the Garment Center, agrees that the increasing informalization of fashion has made consumers cheaper. “Fashion used to be tailored clothing, not bespoke, but a much more structured garment bought at department stores,” he says. “That men walk around in T-shirts and elastic waistband pants has very definitely impacted the notion of what fashion is and contributed to the race to the bottom.” The less skill involved in making our clothes, the cheaper it becomes, and the less we are willing to pay for it. The more basic clothes are, the less it matters where they’re made. A tank top can be made anywhere in the world. The same cannot be said of a well-made dress, which requires a highly skilled seamstress. Does this mean we should return to wearing dresses so elaborate we have to be helped into them?

…

Lily then offered to sell me the Forever 21 embroidered dress for $9 a pop. That’s rich, I thought. I could make a knockoff of what might just be a knockoff. Lily also gave me a price quote for the florette dress, $11. She said, “The cost is rising, but I will try my best to give you my best price because we are friends.”
Over the past two decades, American consumers have accepted, and benefited from, the race to the bottom in fashion. The competition in garment manufacturing has been beyond fierce, with only those with the lowest prices surviving. According to some Chinese suppliers, net margins are still somewhere between 3 percent and 5 percent.1 Returned orders, cancellations, or lapses in the production lineup are common occurrences and they can all easily put a factory under. The profits that are created are kept by those in charge.

…

This might just be where the apparel industry is headed.”
Local production also makes it easier for a designer to be watchful of factory conditions. Abuses and sweatshops still occur in the United States, but smaller production shops and a more locally minded industry focused on low-volume, better-made garments would improve accountability and correct some of fashion’s labor problems. Increasing the price of fashion would also help correct the race to the bottom in garment worker wages. “It’s a lot easier to keep an eye on what’s going on by keeping things local,” EPIC’s Tristan Scott says, although many of their designers produce in such small batches that the pieces are sewn in their own homes or personal studios. Some factory owners complain that state and federal labor laws are too strict, putting them at a competitive disadvantage. But the garment industry needs watchdogs, as history’s shown, or conditions quickly erode.

pages: 772words: 203,182

What Went Wrong: How the 1% Hijacked the American Middle Class . . . And What Other Countries Got Right
by
George R. Tyler

And one-half of all new mortgages in 2006 were liar-loans requiring little or no documentation. The average down payment for first-time buyers fell from 10 percent in 1989 to a bare 2 percent by 2007.33
Deregulation added to the blaze. A majority of these unconventional loans came to be made by unregulated mortgage firms or S&Ls “not subject to routine supervision,” according to Barry Ritholtz, CEO of the quantitative research firm Fusion IQ.34
Stolid firms refusing to join this race to the bottom in credit standards were penalized with shrinking market share and falling share prices.
Alan Greenspan’s fingerprints were everywhere as the housing bubble expanded before the 2004 election, including successfully urging Wall Street to expand home equity loans. Such loans to households totaled $1.79 trillion during 2003–2005, adding spending comparable to an astounding 6 percent of GDP annually, a nice fillip for the reelection campaign of President George W.

…

That substantial level for the minimum wage provided a solid economic floor beneath American incomes during the golden age. It also proved to be a muscular antipoverty mechanism, setting a living wage floor sufficient to prevent abject family poverty.
The logic of the minimum wage is straightforward: without a robust market for labor or a wage floor beneath them, history since the industrial revolution teaches that market forces produce a race to the bottom for wages. The American experience during my first years of work demonstrated how successful minimum wages can be. During its peak years in the late 1960s and early 1970s, America enjoyed the lowest poverty rates ever in its history (11.1 percent in 1973) and higher real wages than today. And the lowest recorded rate of childhood impoverishment ever in America was in 1969, at 13.8 percent.44 Most persuasive is that year after year in this period, America recorded among the lowest unemployment levels in postwar history despite the high minimum wage.

…

The real story of globalization is what happened in Australia and northern Europe.
In America, global integration is a convicted wage killer. But we know that not all Americans suffered. Its dynamic forces improved resource allocation, greatly expanded world trade, and became a wealth machine for a thin slice of America. That meant greater rewards to owners of capital, innovators, and the most skilled, whose shares of national income rose. But for others, a race to the bottom in wages ensued, with workers in Milwaukee, Brooklyn, and Dallas competing one-on-one with workers in Sri Lanka, New Delhi, and Shanghai. And the biggest losers have been less skilled workers and high-wage union shops targeted by the offshoring and wage compression features of Reaganomics.
European economies are much more integrated and influenced by world trade than is America’s. Logically, losses and labor market churning from global integration should have been even more severe in Europe.

The Mechanical Turk is not really that different from other Siren Servers, but it is so up front about its nature that it stands out. Those who take assignments through it often seem to even enjoy the fun of emulating an intelligent machine for someone else’s profit.1
The charade has a triply dismal quality.
Of course there is the “race to the bottom” process that lowers wages absolutely as much as possible,2 making temp jobs in the fast-food industry seem like social climbing on-ramps in comparison. Yet there are people ready to step up and take such roles. More than a few recruits appear to be the live-at-home kids of middle-class Americans, whiling away their time.3
Whenever there is a networked race to the bottom, there is a Siren Server that connects people and owns the master database about who they are. If they knew each other, comprehensively, they might organize a union or some other form of levee.
The second dismal quality is that artificial-intelligence algorithms are getting better, so gradually it will become more possible to not even acknowledge the contributions of real people to the degree done now.

…

Over time, people will hopefully adjust to the idea that you have to pay others as you would like to be paid. The more interests a person perceives in common with others, even when commonalities are best illuminated by theatrical effects, the more likely the market will function well, and grow. The psychology of a social contract will eventually take hold.
In isolation, economic symmetry might pose a risk of a race to the bottom. Wouldn’t everyone initially want stuff for free, and then never be able to compete with the expectation of free stuff from others in order to start charging? This is approximately what happens when a traditional economy stalls and falls into a depression.
Recall, though, the “legacy” portion of the calculation of price described earlier. The “instant” portion of a price is vulnerable to the same old Keynesian catastrophes that have always plagued markets, but the legacy portion is something new, only possible in an information economy run by large computers enabled by Moore’s Law.

He believes that such actions will only impede the recovery of the global economy and set the stage for more capital erosion through loan losses.
Andrew Sheng offers the case for a Tobin tax to finance global public goods. He reviews the origin of the idea in the 1970s and the recent proposal of it by Lord Adair Turner of the Financial Services Authority in London. Sheng says that the world is caught in a collective action trap that encourages a race to the bottom for financial regulation and taxation. He believes that a Tobin tax offers many advantages, including money to finance global public goods, increased data availability on financial transactions, and a tax on bank profits to reduce the bonuses that encourage speculative activity. Sheng estimates that the global value of foreign exchange turnover is $800 trillion and that the value of stock market trading is $101 trillion.

…

It is useful to remember that the present fiscal trend of accelerating expenditure and decreasing tax revenues in order to restore excess consumption, which in turn is funded by excess leverage despite limited global resources, is just a race to another crisis.
The world is caught in a collective action trap. The gaming nature of nation-state and private-sector behavior is such that there is a tendency to race to the bottom. No country is able to tighten monetary policy alone for fear of inviting hot money that negates the policy. Additionally, no country is able to tighten financial regulation for fear of business migrating to other financial centers. Furthermore, no country is able to raise taxation for fear of massive tax arbitrage.
The Triffin Dilemma Goes Global
In hindsight, global imbalances were caused by the violation of the Triffin Dilemma writ large.

…

Global public goods are currently funded by equity (based on the Bretton Woods system that allocates weighted voting quotas to participating institutions) or by direct national grants. These mechanisms are not sustainable. We need a global tax to fund global public goods. But for a turnover tax to work, it is vital that all of the G-20 countries agree to impose a single, uniform rate of, say, 0.005 percent to avoid a race to the bottom from the onset. This would put into place the module of fiscal standardization and tax mechanism that improves conditions for future coordination in monetary policy and financial regulation. The tax can be collected at the national level based on buyer-pay. The tax collected could be credited to a global fund, with a formula that would allow national governments to use part of the proceeds to resolve domestic crisis problems.

Uninsured
women are nearly 50 percent more likely to die four to seven years following an
initial diagnosis of breast cancer than insured women.
The minimum wage is a poverty wage.
The federal minimum wage was enacted in 1938 to put a ﬁrm ﬂoor under workers
and their families, strengthen the economy by increasing consumer purchasing
power, create new jobs, foster growth in lagging regions, and prevent a “race to the
bottom,” with employers moving to the cheapest possible labor state. In 1938,
the minimum wage brought a family of three with one full-time worker above the
federal poverty line. [Talk about how the poverty line was calculated based on food
cost as the highest cost of a household. Today, a household’s heaviest ﬁnancial
burden is housing.] The current minimum wage doesn’t bring one worker with one
child above the federal poverty line.

…

Source
Jessie Willis, How We Measure Poverty: A History and Brief Overview, http://www.ocpp
.org/poverty/how.htm (2000).
Talk about differences in expenses between then and now. Is food a family’s biggest
expense? If not, what is?
Why did they do it?
The federal minimum wage was enacted to put a ﬁrm ﬂoor under workers and their
families, strengthen the economy by increasing consumer purchasing power, create
new jobs, foster economic growth in lagging regions, and prevent a “race to the
bottom,” with employers moving to the cheapest possible labor state.
Exercise (20 minutes)
Does it add up? Does the minimum wage still make sense?
Break the group into six small groups (using money). Give each group one of the
family proﬁles and ask them to calculate whether or not they think the family will
make it, given the wages the family is earning and the assistance it is are receiving.
Be sure to look for holes in the proﬁles: What did we overlook?

…

Many responsible businesses report improvements in the quality of products and
services.
With higher wages, workers have more purchasing power, which buoys the economy.
Ben Cohen has gone on to found Sweat X, which makes “sweatshop-free clothes
for large organizations like universities.” Play Oprah’s tape. (5 minutes)
(How does globalism throw a new wrinkle in the whole thing? Connect back to
original aim of the 1938 federal wage being to prevent a race to the bottom. How
might an international minimum wage be calculated?)
Exercise (15 minutes)
Calculating self-sufﬁciency How would you deﬁne a self-sufﬁciency or equity wage?
Return to the chart developed earlier showing what the minimum wage doesn’t take
into account. What else would we have to take into account for a truly just minimum
wage, one based on minimum needs? Let’s ﬁgure it out together for Rensselaer
County:
THE WAGE IS RIGHT game show.

The campaign
really picked up steam beginning in the 1970s, however, as is discussed
in Chapter 4. 36. Quoted in Richard Gwyn, "The True Allegiance of
Canadian Corporations," Toronto Star, April 28, 1999. 37. See, for
discussions of globalization, Anthony Giddens, Runaway World: How
Globalisation Is Running Our Lives (London: Profile Books, 1999); Joseph
E. Stiglitz, Globalization and Its Discontents (New York: W. W. Norton
and Company, 2002); Alan Tonelson, The Race to the Bottom: Why a
Worldwide Worker Surplus and Uncontrolled Free Trade Are Sinking
American Living Standards (Boulder, Colo.: Westview Press, 2000); Saskia
Sassen, Losing Control: Sovereignty in an Age of Globalization (New
York: Columbia University Press, 1996); William K. Tabb, The Amoral
Elephant: Globalization and the Struggle for Social Justice in the
Twenty-first Century (New York: Monthly Review Press, 2001); Gary
Teeple, Globalization and the Decline of Social Reform into the
Twenty-first Century (Toronto: Garamond Press, 2000); William Greider,
One World, Ready or Not: The Manic Logic of Global Capitalism (New York:
Simon & Schuster, 1997). 38.

…

Corporations
became irresponsible, Monks said in an interview, when "the atom of
ownership" was broken and "owners became one group of people and
managers became another, suddenly nobody became responsible to society."
9. Monks, The Emperor's Nightingale, 163 ("same"), 171 ("safe"). 10.
Interview with Robert Monks ("effective"). 11. Interview with Elaine
Bernard. 12. Interviews with Ira Jackson, Charles Kernaghan, and Debora
Spar. 13. Interview with Robert Monks.
Back Matter Page 40
Progressive Corporate Law with Progressive Social Movements." Tulane Law
Review 76 (2002), 1227-12 52. Tonelson, Alan. The Race to the Bottom:
Why a Worldwide Worker Surplus and Uncontrolled Free Trade Are Sinking
American Living Standards. Boulder, Colo.: Westview Press, 2000.
Tysbine, Alex. Water Privatization: A Broken Promise. Washington, D.C.:
Public Citizen, 2001. Useem, Michael. The Inner Circle: Large
Corporations and the Rise of Business Political Activity in the US and
UK. New York: Oxford University Press, 1984. Vogel, David.

That difference—deference to the status quo versus a vision for reform—is the nut of the argument between the two sides.
When I asked Rubin to consider labor’s critique and its argument for global labor standards, I was pleasantly surprised that he did not brush off the question. Instead, we had an engaging back-and-forth.
Without global rights for workers to organize and some version of a minimum wage pegged to each country’s economic conditions, the “race to the bottom” is sure to continue, I suggest. When workers start mobilizing for higher wages, multinationals counter by moving production to the next available cheap labor market. Middle-class wages fall at the top, but the bottom does not rise as rapidly as it should. “But it’s a complicated question,” Rubin responds. Improving the distribution of incomes in poorer countries “is in everybody’s interest,” he agrees.

…

There would also be explicit rules on exchange rate rigging—a more effective way of tackling the China issue than threatening it with tariffs.
Then there is improving the financial system’s own risk-han-dling mechanisms. Obama should attack the British position.
Prime Minister Gordon Brown advocates more effective cross-border financial regulation, but not so much as to endanger the City of London’s standing as home of minimal regulation—in a race to the bottom with New York. This has to change. Obama should pick up the Financial Stability Forum’s proposal that global trade in financial derivatives be organized in licensed exchanges. If London wants the current casino, let the bulk of the trade be organized out of New York. But more importantly, the U.S. should insist that there be an international college of financial regulators which it will host, fund and coordinate.

Boihng this down into a soundbite: capitalism has always produced poverty alongside wealth, and capitalism has from the first been an international and internationalizing system—so it makes little sense to try to isolate the "global" aspect as the major culprit in the production of inequality.
The MNC
Those who identify globalization as the major force behind the production of inequality frequently point to an alleged "race to the bottom," driven by multinational corporations (MNCs) who constantly ransack the globe searching for low costs and high returns.This too isn't as easy a case to prove as one might think.
After the New Economy
Despite popular images of multinationals scouring the world for maximum return, going abroad seems to lower, rather than raise, profits (CHck and Harrison 2000). Firms operating internationally show a lower return on assets and a lower stock market value relative to assets than do otherwise similar domestic firms.

That’s a perverse feedback, a reinforcing loop that leads to collapse. It is not price information but population information that is needed.
It’s important that the missing feedback be restored to the right place and in compelling form. To take another tragedy of the commons example, it’s not enough to inform all the users of an aquifer that the groundwater level is dropping. That could initiate a race to the bottom. It would be more effective to set the cost of water to rise steeply as the pumping rate begins to exceed the recharge rate.
Other examples of compelling feedback are not hard to find. Suppose taxpayers got to specify on their return forms what government services their tax payments must be spent on. (Radical democracy!) Suppose any town or company that puts a water intake pipe in a river had to put it immediately downstream from its own wastewater outflow pipe.

…

That’s why my systems intuition was sending off alarm bells as the new world trade system was explained to me. It is a system with rules designed by corporations, run by corporations, for the benefit of corporations. Its rules exclude almost any feedback from any other sector of society. Most of its meetings are closed even to the press (no information flow, no feedback). It forces nations into reinforcing loops “racing to the bottom,” competing with each other to weaken environmental and social safeguards in order to attract corporate investment. It’s a recipe for unleashing “success to the successful” loops, until they generate enormous accumulations of power and huge centralized planning systems that will destroy themselves.
4. Self-Organization—The power to add, change, or evolve system structure
The most stunning thing living systems and some social systems can do is to change themselves utterly by creating whole new structures and behaviors.

“People shop deals all the time,” he shrugged.
Ratings shopping was a classic example of why Alan Greenspan’s theory of market discipline didn’t work in the real world. The market competition between the rating agencies, which Greenspan assumed would make companies better, actually made them worse. “The only way to get market share was to be easier,” says Jerome Fons, a longtime Moody’s managing director. “It was a race to the bottom.” A former structured finance executive at Moody’s says, “No rating agency could say, ‘We’re going to change and be more conservative.’ You wouldn’t be in business for long if you did that. We all understood that.”
“It turns out ratings quality has surprisingly few friends,” Moody’s chief executive, Raymond McDaniel, told his board in 2007. “Ideally, competition would be primarily on the basis of ratings quality, with a second component of price and a third component of service.

…

Says Kevin Stein, the associate director of the California Reinvestment Coalition: “Banks said, ‘We don’t have to comply.’ The OCC said, ‘They don’t have to comply.’ The state legislatures said, ‘If we can’t pass a law that regulates federally chartered banks operating in our state, then we’re not going to regulate state-chartered lenders, because then they can’t compete.’ It was a legislative and regulatory race to the bottom.”
Finally, subprime loans continued to make their way, unchecked, into the national banking system, thanks to securitization. It really didn’t matter who originated them. States had no way of cutting off that all-important funding source. And the national regulators, with their energy focused on making sure that “their” institutions were free from pesky state laws, idly stood by.
What none of the regulators could see was the most obvious fact of all: if cities and states all over the country felt the need to enact their own laws—as twenty-five states, eleven localities, and the District of Columbia had by 2004, according to a GAO report—didn’t that suggest there was a problem that needed fixing?

…

In a 2005 memo about Washington Mutual, the FDIC summed up the prevailing sentiment: “Management believes, however, that the impact on WMB [of a housing downturn] would be manageable, since the riskiest segments of production are sold to investors, and that these investors will bear the brunt of a bursting housing bubble.”
And what did Wall Street think about the way the subprime business had gone mad? Wall Street didn’t care, either. If anything, Wall Street was encouraging the subprime companies in their race to the bottom. Lousier loans meant higher yields. “A company would come to us and say, ‘We can’t believe your FICO doesn’t go to 580,’ ” recalls a former Morgan Stanley executive. “ ‘You’re 620, but Lehman will go to 580.’ ”
Here was the ultimate consequence of the delinking of borrower and lender, which securitization had made possible: no one in the chain, from broker to subprime originator to Wall Street, cared that the loans they were making and selling were likely to go bad.

If the antagonists are powerful states, the clash could be bloody.34 (A “surgical strike” against the rival’s AI project might risk triggering a larger confrontation and might in any case not be feasible if the host country has taken precautions.35)
* * *
Box 13 A risk-race to the bottom
Consider a hypothetical AI arms race in which several teams compete to develop superintelligence.32 Each team decides how much to invest in safety—knowing that resources spent on developing safety precautions are resources not spent on developing the AI. Absent a deal between all the competitors (which might be stymied by bargaining or enforcement difficulties), there might then be a risk-race to the bottom, driving each team to take only a minimum of precautions.
One can model each team’s performance as a function of its capability (measuring its raw ability and luck) and a penalty term corresponding to the cost of its safety precautions.

…

The 2010 Flash Crash
3. What would it take to recapitulate evolution?
4. On the kinetics of an intelligence explosion
5. Technology races: some historical examples
6. The mail-ordered DNA scenario
7. How big is the cosmic endowment?
8. Anthropic capture
9. Strange solutions from blind search
10. Formalizing value learning
11. An AI that wants to be friendly
12. Two recent (half-baked) ideas
13. A risk-race to the bottom
CHAPTER 1
Past developments and present capabilities
We begin by looking back. History, at the largest scale, seems to exhibit a sequence of distinct growth modes, each much more rapid than its predecessor. This pattern has been taken to suggest that another (even faster) growth mode might be possible. However, we do not place much weight on this observation—this is not a book about “technological acceleration” or “exponential growth” or the miscellaneous notions sometimes gathered under the rubric of “the singularity.”

Unwilling to pay Maral’s wage rates, the big brands in Europe and North America are switching much of their business to the very cheapest factories paying the very lowest wages. ‘H&M buys mostly from Bangladesh now, and M&S is increasingly doing the same,’ Maral’s managers told me.
Even M&S? That company used to have a reputation for buying where quality was best. But twice in recent years it has come close to collapse because of uncompetitive pricing. So it has transformed itself into a prime player in what economists call the ‘race to the bottom’. When price is all and the customer wants a £3 T-shirt, then, if the cutters and sewers and ironers and packers come cheaper in Dhaka, that is where they will be employed. So, fascinated as I was by my fairtrade organic detour, it was to Dhaka that I went next.
13
Trouser Snakes: The Strange Truth of Dhaka’s Sweatshops
FIVE WOMEN LIVED in the room altogether. Three of them, Aisha, Akhi and Miriam, lined up on one bed.

…

While the buyers are in charge, all this talk from the CSR people is just corporate window dressing, however well-meaning the people involved might be.’
The truth is that retailers talk about little else but price. How they are moving from Sri Lanka or India or Mauritius to Bangladesh or Cambodia or China to take advantage of lower wages. The only limitation seems to have been the quota systems set up in European and North American governments to protect their own domestic industries. But the quotas are now being abolished. And the ‘race to the bottom’ in the mass marketing of cheap clothes is intensifying.
Nazma dismissed Western hand wringing, and said she thought that it would be pressure from within that would ultimately clean up the industry. But she pleaded with customers in Europe not to respond to the obvious injustice with boycotts. The jobs, poor as many were, empowered women. ‘Women are becoming an economic force. This is the first time they have had jobs outside the home.

…

M&S bought them from a company called, coincidentally, Spencer’s Apparel, part of the large Medlar Group. The fabric that made the jeans came from the Nassa Group, which was Wal-Mart’s ‘International Supplier of the Year’ in 2002. But M&S didn’t want to give me an introduction to the companies, and without that the companies weren’t interested in talking to me. So I asked Khorshed about them. They weren’t the worst, he said, but not the best either. Just one of the pack in the race to the bottom.
I wanted to follow where my jeans came from back to the cotton fields. And here came a surprise. Bangladesh’s largest garment makers want to cement their position in the market by making their own fabric. So they have been scouring the world for supplies of cheap cotton. In the past three years, Bangladesh has become the largest consumer of cotton from the Central Asian state of Uzbekistan.
14
White Gold: My T-shirt, Slave Labour and the Death of the Aral Sea
IT IS AN old story, but with an unpalatable new twist.

With as much as 70 percent of China’s budget consumed by local government expenses, many scholars argue that China is already de facto federalized and should become more formally so.3 Indeed, the central government no longer sets or rewards growth rate targets for provinces, indicating they are expected to determine economic strategies for themselves.4 Inland provinces are thus leveraging China’s improved infrastructure to draw companies from the high-wage coastal cities toward the lower-wage interior.
Meanwhile, a “race to the bottom” competition for manufacturing jobs is playing out in America today reminiscent of Asia in the 1980s. Tennessee is reimbursing much of the up-front cost South Korea’s tire maker Hankook will incur to set up its first U.S. plant in Clarksville, where it will become the largest employer in the city. On the other side of Nashville is Smyrna, a town that barely existed until Nissan came in 1983, after which the population quadrupled to more than forty thousand.

…

Illinois thus reveals how anachronistic the idea of politically (rather than economically) defined states is today. As the longtime Chicago Tribune columnist and urban expert Richard Longworth has written, “Midwestern states make no sense as units of government.”7 Kansas City is shared by Kansas and Missouri, but the two states battle to get companies to relocate across State Line Road rather than uniting against global competition. Indiana’s municipalities are also engaged in a Tennessee-style race to the bottom to attract low-wage jobs, undermining Indianapolis’s effort to become a high-wage tech hub.
Some second-tier cities have managed to stay afloat by effectively privatizing themselves. The Port of Corpus Christi, for example, was the first American territory to be granted a foreign trade zone license by the Department of Commerce in 1985, making it a self-governing private entity independent of the city with the same name and taking no federal, state, or city tax revenues.*1 After decades of service as a key port for oil imports and almost zero exports, it has become a major gateway for outbound shale oil exports from the Eagle Ford formation only a hundred kilometers away.*2 In 2009, it began a $1 billion joint venture with Tianjin Pipe Corporation, which hails from China’s leading port, to produce 500,000 tons per year of seamless pipe essential for oil and gas wells.

…

Similarly, a franchise business can be more accountable due to strict rules set forth by a powerful parent company. McDonald’s has more capacity to inspect itself, and more incentive to protect its brand, than any government can devote to monitoring it. Similarly, the West African societies where children work in cocoa fields don’t raise wages or build schools the way Nestlé can.*1
—
SUPPLY CHAINS WERE ONCE thought of as spurring a race to the bottom; now it is clear they are how countries race to the top. Even China and India needed to open to foreign investment to attract supply chains, stimulate reforms, and generate the capital necessary to spread development. As the Nobel laureates Robert Solow and Edmund Phelps have pointed out, foreign firms pay higher wages, bring in new technology, and boost worker skills and productivity. They inject dynamism and capitalize on people’s resourcefulness.

But because of the dominant role we play in the global economy, we do have opportunities to help shape globalization—opportunities not available to others.
In reshaping globalization, we have to realize that there has occurred a race to the bottom from which we have all suffered. The United States is in the best position to stop this (if its politics would allow it); it can fight for better worker rights and conditions, better financial regulations, better environmental conditions. But other countries, working together, can also fight against the race to the bottom.
Even the advocates of globalization should understand that tempering globalization is in their interests. For if globalization is not managed better than it has been, there is a real risk of a retreat, into protectionism or forms of beggar-thy-neighbor policies.

…

The differences in the return to capital are minuscule compared with those on the return to labor.20 But the financial markets have been driving globalization, and while those who work in financial markets constantly talk about efficiency gains, what they really have in mind is something else—a set of rules that benefits them and increases their advantage over workers. The threat of capital outflow, should workers get too demanding about rights and wages, keeps workers’ wages low.21 Competition across countries for investment takes on many forms—not just lowering wages and weakening worker protections. There is a broader “race to the bottom,” trying to ensure that business regulations are weak and taxes are low. In one arena, finance, this has proven especially costly and especially critical to the growth in inequality. Countries raced to have the least-regulated financial system for fear that financial firms might decamp for other markets. Some in the U.S. Congress worried about the consequences of this deregulation, but they felt helpless: America would lose jobs and a major industry if it didn’t comply.

…

The new reality is that, given the magnitude of the recession of 2008 and given the magnitude of the structural transformation our economy is going through, there will be large numbers of long-term unemployed for the foreseeable future.
Government programs (like the earned-income tax credit, Medicaid, food stamps, and Social Security) have proven very effective in reducing poverty. More spending on these programs could reduce poverty even more.
Tempering globalization: creating a more level playing field and ending the race to the bottom
Globalization and technology both contribute to the polarization of our labor market, but they are not abstract market forces that just arrive from on high; rather, they are shaped by our policies. We have explained how globalization—especially our asymmetric globalization—is tilted toward putting labor in a disadvantageous bargaining position vis-à-vis capital. While globalization may benefit society as a whole, it has left many behind—not a surprise given that, to a large extent, globalization has been managed by corporate and other special interests for their benefit.

Finally it was the turn of France and England to devalue again. In 1936, France broke with gold and became the last major country to emerge from the worst effects of the Great Depression while England devalued again to regain some of the advantage it had lost against the dollar after FDR’s devaluations in 1933.
In round after round of devaluation and default, the major economies of the world raced to the bottom, causing massive trade disruption, lost output and wealth destruction along the way. The volatile and self-defeating nature of the international monetary system during that period makes Currency War I the ultimate cautionary tale for today as the world again confronts the challenge of massive unpayable debt.
Currency War I began in 1921 in Weimar Germany when the Reichsbank, Germany’s central bank, set about to destroy the value of the German mark through massive money printing and hyperinflation.

…

Such blocs can arise spontaneously according to well-known models of self-organization in complex systems. Regional currency blocs could quickly devolve into regional trading blocs with diminished world trade, undoubtedly the opposite of what the advocates of multiple reserve currencies such as Eichengreen envision.
Eichengreen expects what he calls healthy competition among multiple reserve currencies. He discounts models of unhealthy competition and dysfunction—what economists call a “race to the bottom,” which can arise when leading central banks lock in regional dominance through network effects and simultaneously abuse their reserve status by money printing. The best advice for advocates of the multiple reserve currency model is “Be careful what you wish for.” This is an untested and untried model, absent gold or some single currency anchor. The missing-anchor problem may be one reason why the dollar continues to dominate despite its difficulties.

Without inequality, there could never be progress: “The main spring of progress is the desire of individuals to better their condition …”100 While the northern states were home to cut-throat capitalism and to a natural war between labor and capital, Calhoun described each plantation as a microcosm of harmony between labor and capital, embodied by the person of the plantation owner.101
One of the most prolific anonymous editorial writers on slavery, Virginia lawyer George Fitzhugh, advocated slavery as a form of paternalistic social organization for workers. As had the New York Working Men, Fitzhugh argued that competition promoted a race to the bottom in living standards. He claimed that workers and their employers in the North were only linked by the impersonal cash nexus, and that a manual worker had almost no power compared with the man who would or would not hire him. But Fitzhugh went beyond the arguments of northern workers by arguing that dependent relationships were better because they caused an affectionate tie: between husbands and wives, parents and children, and masters and slaves.102 He argued that in the best-case scenario, all workers would be enslaved.103 In the north, newspaper editors went wild, printing and reprinting Fitzhugh’s anonymous editorials while alleging a southern conspiracy to deprive white workers of their liberties.104
Historian Peter Kolchin argues that slaveholders in the United States (in contrast with the Russian serf-holders he compares them to) were able to defend slavery freely because of the free press in the United States.

…

Fears about the slowing of the economy in general are met with calls for the education of the workforce, as though that, rather than increasing consumer demand, will guarantee that every individual somehow has a high-paying job. In fact, automation has caused the hollowing out of the wage structure; the highest-paid people continue to be highly paid, while middle- and low-skilled workers conduct a race to the bottom for lower-skilled jobs. Without some degree of redistribution and the provision of more public goods “such as food, housing, education and health care that are necessary for a modern life to go well,” there is no guarantee that economic output will have any relationship to well-being.72
The path of the Patient Protection and Affordable Care Act (ACA, 2010) provides a good illustration of the problems caused by divergent partisan ideologies and powerful framing narratives.

Additionally, at an October 2015 labor conference hosted by the White House, President Barack Obama discussed ways of protecting the new workforce in an hour-long town hall discussion he moderated with Michelle Miller, the co-founder of coworker.org, after highlighting the opportunities created by the future of work heralded by platforms like Uber, Lyft, and TaskRabbit in an earlier keynote speech.
But what exactly do these opportunities look like? On one side of the argument, there are the Liss-Riordans of the world who may consider the future of work—at least as it is currently unfolding in the sharing economy—as a near-certain race to the bottom. Among the most vocal proponents of this view is the former labor secretary and University of California professor Robert Reich. Asserting that a better name for the sharing economy would be the “share-the-scraps economy,” Reich posits: “Customers and workers are matched online. Workers are rated on quality and reliability. The big money goes to the corporations that own the software. The scraps go to the on-demand workers.”8 In this dystopian view of the future, work will be defined by low wages, the elimination of benefits, and high levels of job insecurity.

…

Will the sharing economy ultimately represent the rise of the microentrepreneur—a generation of self-employed workers who are empowered to work whenever they want from any location and at whatever level of intensity needed to achieve their desired standard of living? Or will it represent the culmination of the end of broad-based and high standards of living that the United States witnessed in the 1950s and 1960s—a disparaging race to the bottom that leaves workers around the world working more hours for less money and with minimal job security and benefits?
Put another way, will the future of work be populated by successful microentrepreneurs, like David with his fleet of cars on Turo, ThreeBirdNest’s Alicia Shaffer on Etsy, and Don Dennis running his business from the island of Gigha? Or will the future be populated by disenfranchised workers who scurry between platforms as they hunt for their next wedge of piecework?

pages: 273words: 87,159

The Vanishing Middle Class: Prejudice and Power in a Dual Economy
by
Peter Temin

It’s a view that says in America, we are greater together—when everyone engages in fair play, everyone gets a fair shot, everyone does their fair share.
So what does that mean for restoring middle-class security in today’s economy?
It starts by making sure that everyone in America gets a fair shot at success. The truth is, we’ll never be able to compete with other countries when it comes to who’s best at letting their businesses pay the lowest wages or pollute as much as they want. That’s a race to the bottom that we can’t win—and shouldn’t want to win. Those countries don’t have a strong middle class. They don’t have our standard of living.
…The fact is, this crisis has left a deficit of trust between Main Street and Wall Street. And major banks that were rescued by the taxpayers have an obligation to go the extra mile in helping to close that deficit. At minimum, they should be remedying past mortgage abuses that led to the financial crisis, and working to keep responsible homeowners in their home.

Fiderer asked a simple question: If there were
really 31 million “risky” mortgages, and Fannie and Freddie were
responsible for half of them, why was the peak rate of serious
delinquency for GSE-backed loans only about 1.8 million? The
reason is that Pinto deﬁnes “risk” far di≠erently than most
and includes a large number of loans that didn’t turn out to be
particularly risky. Another reality check is that if Fannie and
Freddie led the race to the bottom, then you would expect to see
much higher loss rates on their loans. Instead, the opposite is
BETHANY McLEAN
COLUMBIA GLOBAL REPORTS
true. The FCIC researchers ended up rejecting Pinto’s analysis
because they found that the loss rates on the GSEs’ loans were
actually far smaller than those on comparable private-sector
loans. But they did meet with him multiple times, and produced
two detailed memos about mortgage performance, one of which
was a direct response to his analysis.

After all, gay couples might
be more likely to choose to reside—and do business—in states that
allow such marriages than in states that do not. Under Enrich’s theory, this too would unfairly “tilt” the “playing field” by pressuring
noncomplying states to legalize such marriages.35
Concerns about a “race to the bottom,”36 wherein states would cut
taxes and decrease regulations to attract businesses, are overblown.
States face a natural disincentive to enact reckless tax policies: such
181
The Right to Earn a Living
policies cost them revenue. This counteracts pressures to lower taxes
in ways that harm the general public. In fact, forbidding states to
“divert” interstate commerce would create the opposite of a race to
the bottom, namely, a “ratchet” effect under which states would be
free to raise, but not to lower, taxes; to increase, but not to decrease,
their regulatory burdens. States would not be allowed to implement
policies that might draw businesses or citizens away from neighboring states.

Perhaps as a form of insurance for some cataclysm to come, Mozilo granted sweetheart mortgages (on preferred terms) to a host of political and business luminaries.b11 But his company appeared to be thriving. From ’00 to ’04, Countrywide’s share price nearly quadrupled, and over the ensuing few years Mozilo personally reaped $474 million in stock sales.12
Mortgage banking inevitably produces a race to the bottom. Thanks to competitive pressures, bad loan practice drives out good, and Mozilo’s influence on the industry was considerable. The only way for rivals to compete was to go after the same business as Countrywide. Washington Mutual, a century-old Seattle-based thrift, had more conventional banking bloodlines, but in the new century it experienced a rebirth. WaMu had been run since 1990 by Kerry Killinger, a Des Moines music teacher’s son who, as a student at the University of Iowa, had fixed up houses to build his capital.13 He parlayed his profits into a career as a securities analyst with a small investment firm, which WaMu acquired in 1982.

…

See collateralized debt obligations (CDOs)
cooling of market for
credit rating agencies and
example of
fall in prices of
foreign-held
Goldman Sachs and
growth of
insurance claims on
Lehman Brothers and
Merrill Lynch and
mortgage bubble and
payment waterfall
prime
risk taking and
subprime mortgages and
swimming pool metaphor for
total amount floated in
mortgage banking, as race to the bottom
mortgage bubble
banking regulators and
banks’ late stage desperation in
bursting of
Citigroup and
credit and
developing disaster, evidence of
Federal Reserve’s role in
Freddie Mac and Fannie Mae and
mass hallucination in
Merrill Lynch and
mortgage securitization and
reasons for
ripple effect of
Wall Street and
Washington Mutual and
mortgage lenders. See also specific lenders
closings of
nonbank
mortgages/mortgage debt
adjustable rate.

The credit column of the corporate balance sheet remains intact.
Those on the other side of the trade have little choice in the matter. They are debtor nations, whose loans have been restructured by an IMF with only corporate interests or misapplied international trade theories in mind. A free-trade landscape sloped to the interests of corporate colonialism leads to what progressive economists call a “race to the bottom.” Nations compete to offer the best prices and the fewest obstacles for corporations to come set up shop. If this means preventing unions from forming, lowering environmental standards, or even subsidizing the construction of factories, so be it. With no minimum standards established between them or through international regulation, whoever stoops the lowest wins the contract.
This downward leveling supports the West’s consumption via credit while inhibiting local production of goods by developing nations for their own use.

…

The cost of basic staples like food and clothing go up, as local consumers are now forced to compete against those in much wealthier nations for the same products. The net result is that the disparity of wealth and standards of living between the rich and poor nations gets worse, not better.
People living in the developing world might take heart in the fact that corporate colonialism no longer distinguishes between the localities it undermines. The phrase “race to the bottom” was first used, in fact, by Supreme Court Justice Louis Brandeis in 1933 to describe the way American states were falling over themselves to attract corporate business. Just like developing nations undercutting each other’s labor and environmental interests to win factory contracts, U.S. states were busy rewriting their charters and laws to the benefit of companies who incorporated there.

And in our case, what we are able to do is, we are able to generate fantastic opportunities for people from a variety of countries around the world.
“Typically what they are able to earn from us is significantly greater than what they are earning if they would have stayed where they were,” Goldstein said. “So our view, not surprisingly, is that we provide fantastic employment opportunities to people from around the world that would not otherwise exist.”
Goldstein’s argument is what academics call the “race to the bottom” justification, a throwback to the early twentieth century before societies mandated minimum wages, improved labor conditions and the right to collective bargaining. While those rights were codified in national laws and are enforced within national boundaries, they are laws that the cruise companies can ignore.
Twenty years ago cruise ship wages would have been a decent sum, especially for highly motivated people trying to escape abject poverty.

Inflationary pressures caused the initial deregulation of interest rates by the states, but it was a Supreme Court decision that ultimately eradicated real interest rate caps in the country. In Marquette National Bank v. First Omaha Service Corporation, the Supreme Court said that a credit card lender could export the interest rates of one state to any other. Banks immediately lobbied for and were granted the same privilege. Predictably, lenders began to charter in states with the highest rates, which they then exported nationwide. This in turn caused a “race to the bottom” as states competed for lending businesses by lowering borrower protections and increasing usury limits.32
The U.S. Supreme Court case allowing rates to be exported did not apply to payday lenders because the industry was not prevalent at the time. However, payday lenders were able to quickly take advantage by “borrowing” bank charters, a practice dubbed “rent-a-bank,” in order to “benefit” from high interest rates.

…

These drastic errors took on a life of their own, and instead of being quickly corrected, have been cited by every single scholar or policymaker who blamed the CRA for the financial crisis.
Although it may be absurd to implicate the CRA, is there any truth in blaming the weaker underwriting standards espoused by both the Clinton and the Bush administrations? The claim is that in an effort to increase home lending to low-income and middle-class borrowers, policymakers allowed the GSEs Fannie Mae and Freddie Mac to lower standards for mortgages and created a race to the bottom that other mortgage buyers were all too willing to join. This increased mortgage lending in general and exacerbated the bubble. However, these lowered standards did not create the subprime market, which was the main cause of the financial crisis. Again, policymakers started pushing these initiatives in the 1990s—well before the subprime market heated up. In fact, the GSEs’ market share of mortgages went from 50 percent to 30 percent from 2002 to 2005.

Shifting to a tax code that doesn’t give debt such preferential treatment would be a great way to shift the buyback dynamic, and this is a topic I will cover in much more depth in chapter 9.
Cracking down on overseas tax havens and closing corporate loopholes is another obvious measure that’s long overdue. This is especially true given the fact that most other G8 nations are considering similar proposals, which would help offset some of the threat of a corporate race to the bottom, in which corporations offshore to the most attractive tax havens. Similarly, taxing capital gains on a sliding scale, with higher rates for shorter holding periods and lower rates for longer ones, could discourage the seekers of quick gains from distorting the markets. (Bonus pay might also be spread out over time and linked not to share prices but to real business performance, something that a number of firms are beginning to experiment with.)

…

Basically, this strategy funnels the profits from the knowledge economy, where the innovation actually occurred, to a different economy that offers the cheapest cash haven. Firms can go further and add a “Dutch sandwich” onto this maneuver. Because there are European Union tax agreements in place that allow money to move freely between EU countries, American firms can set up Dutch subsidiaries and transfer more money from more countries into Irish subsidiaries. The whole thing creates a global race to the bottom, which underscores one of the key problems of tax avoidance: the so-called “tragedy of the commons” where, in the end, everyone loses. This is a key reason that the G8, the OECD, and other international bodies are making global tax reform a big priority. (Ireland in particular, under pressure from other countries like the United States, is now reconsidering some of its dicey exceptions.)13
There are plenty of crazy exemptions and rules that enrich the takers by encouraging debt in the consumer sphere, too.

There were, of course, countries like South Korea, Taiwan, and China that took full advantage of globalization to open up export markets and grow. But the other industrialized democracies were comfortable with their welfare states and often saw the American drive to liberalize markets around the world not as a well-intentioned effort to promote reform but as an American attempt to impose its
American Exceptionalism
own antistatist values on the rest of the world in a "race to the bottom."
Much of the drive to Americanize the global economy came out of the private sector and the challenge posed by newly competitive U.S. companies and financial institutions. But American government policy was highly supportive of economic liberalization as well, in ways that generated a backlash that often went unperceived in Washington. The Washington Consensus was a package of orthodox economic liberalization measures that were often attached as conditions to structural adjustment lending packages by international financial institutions like the International Monetary Fund (IMF) and the World Bank for developing countries. 14 Had this type of U.S.

The difficulty here comes less from competition with
emerging countries than from competition with other de-
188
Conclusion
veloped countries. Given the deep transformations taking
place in rich countries, in the midst of the deindustrialization brought on by emerging economies, each country is
attempting to garner the maximum number of advantages
to itself in the sphere of international competition. It is this
competition that threatens to provoke a “race to the bottom” in terms of redistribution. It is out of concern for remaining competitive with respect to other developed
countries that certain countries have tried to moderate
wage increases and social protection, while encouraging
entrepreneurship and innovation by cutting their tax rates
relative to their neighbors.
Aside from the areas in which states still have some autonomy, the question arises as to whether the fight against
inequalities should be a common undertaking, rather than
the initiative of isolated countries.

African countries should learn from the examples of other
southern countries . . . where governments are taking
back what was sold off to multinational corporations.
The same IFIs are behind the attacks against the state that
translated into the destruction of the public sector to the beneﬁt of foreign capital. They imposed the privatisation of stateowned enterprises in the name of ‘private sector development’
and ‘efﬁciency’. And private sector development required engaging in a race to the bottom in order to attract foreign direct investment (FDI). To that end, African countries raced to
sell off state-owned enterprises, mining industries and natural
resources. In several countries, there were even ‘ministries of
193
The Global Financial Crisis
privatisation’ whose main mission was to sell off some of the
most proﬁtable public assets with little positive return for
their countries.

But the cost reduces to spending some extra time and resources to set up a judicial procedure to settle foreseeable disputes over membership in communities of affected parties.
There is actually one other “cost”—although I think Erik will agree with me that it is actually not a “cost” but a “benefit.” Our mechanism doesn’t work if communities have significantly different incomes because it would lead to a race to the bottom effect where pollution was unfairly and inefficiently located nearer poor communities. Only in a highly egalitarian economy such as the participatory economy we propose does it appear possible to design a mechanism that reveals accurate quantitative estimates of the damage from pollution.
Risk and Innovation
Any group of workers who can submit a proposal during the planning procedure that is approved as socially responsible, i.e. whose social benefit to cost ratio is at least one, will receive the inputs it requests to start producing when the year begins.

Although the human cloud is in its infancy, there is already substantial anecdotal evidence that it entails silent offshoring (silent because human cloud platforms are not listed and do not have to disclose their data).
Is this the beginning of a new and flexible work revolution that will empower any individual who has an internet connection and that will eliminate the shortage of skills? Or will it trigger the onset of an inexorable race to the bottom in a world of unregulated virtual sweatshops? If the result is the latter – a world of the precariat, a social class of workers who move from task to task to make ends meet while suffering a loss of labour rights, bargaining rights and job security – would this create a potent source of social unrest and political instability? Finally, could the development of the human cloud merely accelerate the automation of human jobs?

His conclusion is that in a free market, merit aid has become a discount used to attract the “right kind” of student—that is, the kind with parents that can pay full tuition.27 In the 1980s, as Burd tells it, some schools realized that they could steal good, wealthy applicants away from other schools by offering them modest amounts of financial aid (around $2,000–$5,000 a year). At first, this worked. The schools would throw out some breadcrumbs and attract wealthy students who basically paid full price. The problem is that this inevitably becomes a race to the bottom. Here is Burd’s example:
If a school offers a single low-income student a full scholarship of $20,000, the school may feel good about itself, but it’s out $20,000. But if it can attract four affluent students to its campus instead, by offering them each a $5,000 discount off full tuition, it can collect the balance in revenue and come out way ahead financially. Such competitive discounting to the affluent may not be equitable, and it may not be sustainable over the long term, but once the cycle starts it can be very difficult for any one institution to resist unless they all do.

You can concentrate on quality, fill a niche or a greater need, and invest the time, money, and work to make it stand out, as many have done, although with no guarantee of success. Or, you can make it sensational, appealing to whatever it is that for obvious reasons will immediately turn our attentions from just about anything to violence, threat, insanity, or sex. That is why television’s mainstays are dead bodies, teasingly exposed bosoms, and exploding cars. And so, in “blogging,” as in much else, begins the mad race to the bottom. Blogging’s anonymity makes it the intellectual twin of road rage. But unlike road rage it is not and cannot be subject to law. The only defense against its lowliness is to know it for what it is and call it thus.
In the great scheme of things, the reaction to my article is, of course, as unimportant as the article itself. This is not false humility. I am well aware of the place an op-ed article on copyright occupies in a world of limitless heartbreak and tragedy.

All succumbed to the lure of labor arbitrage abroad, while wage pressure made union relations increasingly toxic at home.
To be sure, many of these smaller manufacturers lost on their merits: their products were no better than imported goods and their costs uncompetitive. But others failed because they lost their distribution channels to the few consumers who still wanted their specialized goods (or just wanted to buy American). The grinding race to the bottom of price competition at the big-box retailers made it increasingly hard to find niche goods.
Fast-forward a half century, and two things have changed. First, thanks to desktop fabrication and easy access to manufacturing capacity, anyone with an idea can start a business making real things. And second, thanks to the Web, they can sell those things globally. The barriers against entry to entrepreneurship in physical goods are dropping like a stone.

Suppose we need, as I suggest in chapter 3, an additional 10 percent of GDP to fund new social programs, expansion of existing ones, and demography-imposed increases in the cost of Social Security and Medicare. Is that feasible? If so, what’s the best way to do it?
Let’s begin with feasibility. Is heavy taxation still possible in a world where firms, institutions, and wealthy individuals can move their money anywhere they like? The answer, at least so far, is yes. Globalization has not induced a race to the bottom in taxation. Many rich nations have reduced their top statutory rates, but they’ve offset this by reducing tax exemptions and deductions. Effective tax rates have therefore changed little, and taxes as a share of GDP have not fallen.1
Indeed, the rich nations with big governments are no more likely than others to have large public deficits and debt. As figure 4.1 shows, the social democratic Nordic countries have comparatively low levels of government debt.

Or classifieds, or music sales, or telephone calls, or video, or real-time highway traffic, or comedy, or news or social networking, gaming, recipes, or whatever anyone wants that can be delivered with zero marginal costs and provides it anywhere and everywhere. No vertical integration.
Think about how different this is from media today. The technology of sticking a microphone in front of someone, or turning on a camera or switching a phone call, was perfected years ago. It’s not about technology anymore. It’s about programming content, not computers, to attract viewers. With a few decent exceptions, it has been a race to the bottom.
Will a horizontal online world create a race to the top? More like higher highs and lower lows. At the edge, people pick what to do and watch according to their taste. And there is no accounting for taste. Or as Jay McInerney wrote, “taste is just a matter of taste.”
But now getting packets through that bumper car of an Internet to create a virtual pipe actually takes someone writing code and designing easy-to-use services.

Retail was once one of the most simple business models — find a geography, buy a product, sell at margin — while it’s now one of the most complex. What was once a mum-and-pop business possibility is quickly becoming a sophisticated, technology-driven, multi-channel mind warp.
It’s hardest for the retailers selling what everyone else sells. Selling well-known, widely-distributed products online is simply a race to the bottom, a price war that can only be won by the most efficient operator. It’s quickly turning into a game of logistics more than it is about customer engagement. The world of today is an infinite store, where everything is available at the best price possible to anyone, anywhere.
The retail revolution
Retail is going through a revolution, but unlike many of the other industries being impacted by fragmented technology, it’s not the first one retail has been through.

What low-wage employers now seem to demand are workers whose lives have infinite give and 24-7 dedication, for little in return. Only an employer who is guaranteed a steady stream of desperate job applicants could require a worker to be on call, ready to come in if needed, with no promise of hours. Labor practices such as work loading and on-call shifts are important tools for service sector employers, especially retail chains trying to offer the lowest prices. Simply put, in the face of this race to the bottom, it’s hard for those employers who want to do right by their workers to stay in the game. Recent research has found that when a new Walmart opens in a community, it causes an overall loss in jobs in that community because other stores—including some that might pay better or offer stable hours—can’t compete. That’s what happened to Rae’s previous job at the neighborhood Kmart. That store was shut down when a brand-new Walmart Supercenter opened close by.

It all brings to mind the
comment a journalist colleague of mine made to me after discovering
that one of the collapsed US energy company Enron’s many alleged
misdeeds was to fake a sale of power plants mounted on barges off
Nigeria’s coast. Enron and Nigeria, he noted, seemed two particularly
well-matched business partners.
Not many anti-corruption campaigners think the arrival of
the world’s new economic powers in the Gulf of Guinea will help
improve behaviour. Instead, activists talk gloomily of their fears of
a ‘race to the bottom’, as the Western multinationals and their new
challengers compete ever more aggressively for business. When
Nigeria auctioned off 25 exploration blocks in 2006 – many to
companies from Asian countries keen to expand their energy
resources – the Financial Times reported widespread allegations of
‘political favouritism and back-room dealing’. In December 2008,
research by Transparency International, the anti-corruption group,
said companies from China, India, Russia, Mexico and Brazil were
perceived as the worst offenders among leading world economies
in terms of paying bribes to win business overseas.

That’s below the threshold of impulse purchase and squarely in no-brainer territory for anything decent that I happen to be interested in.
But applications that cost $5 or more? Outrageous! Highway robbery!
This is all very strange, as a guy who is used to spending at least $30 for software of any consequence whatsoever. I love supporting my fellow software developers with my wallet, and the iPhone App Store has never made that easier.
While there’s an odd aspect of race to the bottom that I’m not sure is entirely healthy for the iPhone app ecosystem, the idea that software should be priced low enough to pass the average user’s “why not” threshold is a powerful one.
What I think isn’t well understood here is that low prices can be a force multiplier all out of proportion to the absolute reduction in price. Valve software has been aggressively experimenting in this area; consider the example of the game Left 4 Dead:
Valve co-founder Gabe Newell announced during a DICE keynote today that last weekend’s half-price sale of Left 4 Dead resulted in a 3000 percent increase in sales of the game, posting overall sales (in dollar amount) that beat the title’s original launch performance.

There would be only one effect of the bank's altruism —of its willingness to sacrifice profits enabled by taking a slight risk of bankruptcy that most financial executives would think tolerable, as the risk would be unlikely to materialize for a number of years during which they would be making huge amounts of money: the bank would lose out in competition with its daring competitors. And they would be daring, because financial intermediation, being an inherently risky business activity, attracts people who are comfortable with risk.
There was a race to the bottom —or the top, depending on one's perspective. The most daring, aggressive players in the financial sandbox would ramp up the riskiness of their lending or other investing, and this would increase their returns, at least in the short run. Their timid competitors would be forced to match the daring ones' strategy or drop out of the competition. I am told that some bank officials asked the federal regulatory agencies to rein in their competitors, but to no avail.

The first Operation Dixie was a failed campaign by the Congress of Industrial Unions to organize workers in the South in the postwar years. It failed largely because of the hardened racial lines of Jim Crow and the prohibitions on strikes set in place under Taft-Hartley. The defeat of Operation Dixie resounds powerfully today, both in terms of the emaciation of the unionized workforce and the race to the bottom engendered by the South’s long-standing animus to anything that smacks of cross-race solidarity.
In February 2014, after months of intense organizing and even active support from the company, the United Auto Workers lost the election to unionize Volkswagen’s plant in Chattanooga, Tennessee. It was a bruising defeat, made even more so by the fact that the election was exceedingly close—712 to 626, just 86 votes shy of what would have been a game-changing victory for the southern working class.

Thanks to this highly profitable movie franchise, Downey is the world’s highest paid actor, with earnings of $75 million per year.13 As one media account put it, Downey “is a walking, talking multi-billion-dollar business.”14
What might surprise readers it that 2015’s highest paid actor couldn’t even get a movie made when the twenty-first century began. Downey’s addiction to drugs and alcohol led to jail time, rehab, fights in prison, and even a 911 call from a neighbor who found an out-of-sorts Downey asleep in her eleven-year-old child’s bed. Amid his self-inflicted race to the bottom, Downey couldn’t make movies because the costs involved were too steep. Movies are expensive to make and difficult to finance even for the top producers, and Downey’s habits rendered him wholly unreliable. No sane insurance company would write a policy for a production that had him attached. Put simply, Downey was too much of a credit risk.15
This lack of credit turned out to be a blessing for Downey.

Interviewed by the Washington Post, a Homejoy spokesperson gave the standard Sharing Economy line, emphasizing the quality of the service by claiming that “only 30 percent of applicants make it through to become cleaners,” but was somehow unable to find answers to more pressing questions. He “declined to disclose any of the company’s other metrics, such as the average wage earned by its cleaners in a week or the distance they travel to jobs.”
Sharing Economy entrepreneurs like to talk about “earning a little extra money” and making life a little more affordable, but Anthony Walker shows that the business model is a race to the bottom for the service providers. The most that can be said for the practice of replacing actual jobs with the kind of precarious, state-subsidized work that Walker gets from Homejoy is that it is better than nothing, but it is undermining other workers as it does so, and while Walker gets some money he has no chance of moving on to actual employment.
Kevin Roose of New York magazine was living in the San Francisco Bay area and asked for a house cleaning through Homejoy.

Rather than railing against poorly enforced labor standards, the NGO Ethical Trading Initiative works directly with the governments of Bangladesh and other countries. Social Accountability International (SAI), a multi-stakeholder nonprofit, has certified facilities in fifty-seven countries across seventy industries and funds itself through contracts with businesses looking for ways to improve labor conditions. SAI’s certification and codes of conduct do far more for labor rights than empty appeals from the ILO.
Rather than “racing to the bottom”—always seeking the cheapest labor—more and more foreign companies are driving the “race to the top,” spreading good management practices, training workers with new skills, and offering better salaries than what is offered domestically. Exporting good businesses is among the smartest diplomatic strategies the West can pursue to create tangible change worldwide. If we want to achieve “decent work” for the poor, then we must globalize the work.

We had a dizzying array of regulators, and a political climate in which some of them could pose for official photos with regulation-slashing chain saws. We also had all sorts of regulatory gaps, with nobody responsible for the entire system. And Wall Street, as President Bush later said, had gotten drunk. Financial firms were chasing higher returns through increasingly leveraged and risky trades even though they knew they were racing to the bottom; as Citigroup CEO Charles Prince memorably explained, “as long as the music is playing, you’ve got to get up and dance.”
When a top Morgan Stanley executive named Vikram Pandit left the firm in 2005, we had lunch and he passed along the not-so-novel wisdom that the shift from private partnerships to public companies had poisoned the culture of Wall Street, encouraging executives to focus on quarterly profits and the exorbitant stock options that came with them.

…

We just had to focus on what approach was most likely to work, and hope the public would judge us on the results rather than the optics.
AT THE start of April, President Obama and I went to London for his first G-20 conference, a high-profile test of the international community’s ability to work together to attack the crisis. During the Depression, nations had turned inward, erecting new trade barriers in a damaging race to the bottom, embracing austerity while global demand withered. We were determined not to repeat those mistakes. Our fortunes were closely tied up with the rest of the world, and it would be tough to turn the U.S. economy around if the global economy continued to contract.
Some G-20 nations, particularly Germany and France, wanted the meetings to focus primarily on long-term international regulatory reforms that could help mitigate the next crisis.

“But consolidation has meant that when the large agribusiness interests decide to change course abruptly and, say, invest in biofuels, that can lead to severe disruptions in food markets in the short run.”
The United States is the world’s largest exporter of food and as such dominates world food policy. But in recent years we have become increasingly dependent on imports in a frantic effort to keep food prices low. Left to their own devices, global food markets pretty much follow the same “race to the bottom” model followed by other unfettered markets. Subsidies and economies of scale have made grain and everything it is made of—including the animals that eat it—increasingly cheap.
In hard times all but the poorest Americans tend not to cut back on food consumption but, rather, gravitate toward getting what we perceive to be “more for less.” Responding to rising food prices and a sinking economy in the early months of 2009, Americans cut back on fresh fruits and vegetables but increased their consumption of fast food.

The model worked reasonably well when most of the originators were from established firms such as commercial banks. As Freddie and Fannie moved up the risk scale, however, they loosened their underwriting standards to meet the affordable-housing (that is, subprime) goals established by Congress. The whole origination market relaxed its standards to compete with Freddie and Fannie. Driven by Freddie and Fannie, the private originators created a competitive race to the bottom as the bubble continued (funded by the Federal Reserve) and it appeared that no matter how low the standards, home loans would not default.
Of course, Standard & Poor’s (S&P), Moody’s, and Fitch played a major role in this process. They dramatically overrated bonds backed by high-risk mortgages. Their special government sanction (via the SEC) gave them credibility. They were also misled by the artificial economic environment created by the Federal Reserve.

And while each regulator nominally had its own sphere of jurisdiction—bank holding companies for the Fed, national banks for the OCC, and so on—financial institutions that fell under multiple regulatory agencies were allowed to select their primary regulator. As a result, regulatory agencies had to compete for funding by convincing financial institutions to accept their regulation, which created the incentives for a “race to the bottom,” in which agencies attract “customers” by offering relatively lax regulatory enforcement.
The OTS stood out in this competition. According to William Black, a law professor and former official at the Federal Home Loan Bank Board, “The reputation of the Office of Thrift Supervision was that it was the weakest, and the laxest, and it was indeed outright friendly to the worst of the non-prime lending.”22 American International Group (AIG), a massive insurance company with one of the largest derivatives trading operations in the world, opened a savings and loan—and then chose the OTS as its primary regulator, even though the agency, with its focus on mortgage lending, had no chance of monitoring the risks taken on by AIG’s infamous Financial Products division.

CHAPTER 9: DO NO EVIL
131 In April 2011, Mike Lazaridis, co-CEO of Research in Motion (RIM), maker of BlackBerry, sat down for an interview with the BBC’s Rory Cellan-Jones: Full video of the exchange is at http://news.bbc.co.uk/2/hi/programmes/click_online/9456798.stm (accessed June 27, 2011).
133 Shi Tao: For a detailed account and list of sources related to the Shi Tao case and Yahoo, see Human Rights Watch, Race to the Bottom: Corporate Complicity in Chinese Internet Censorship, 2006, www.hrw.org/reports/2006/china0806; and Rebecca MacKinnon, “Shi Tao, Yahoo!, and the Lessons for Corporate Social Responsibility,” working paper, December 27, 2007, http://rconversation.blogs.com/YahooShiTaoLessons.pdf.
136 the year Microsoft launched MSN Spaces in China, 2005, was also the year the Chinese blogosphere exploded: For a detailed account of the evolution of the Chinese blogosphere and government controls, see Rebecca MacKinnon, “Flatter World and Thicker Walls?

Fringe lenders then market and distribute them. Lenders with rent-a-bank partnerships often charge higher interest rates, make larger loans, or make repeat loans that violate state laws. Despite warnings from federal bank regulators, FDIC-insured bank involvement in fringe lending may be continuing. In turn, consumer groups have criticized the FDIC for being too lax in ending rent-a-bank arrangements.36
A RACE TO THE BOTTOM
A key reason why consumers use payday lenders is to avoid bounced-check fees. In 2003 banks charged $30 billion in ATM, bounced-check, and overdraft fees, accounting for 30% of their operating profit.37 Federal law allows banks to process checks in any order they choose, and some maximize their NSF profits by using a big-to-small processing system.38 For example, if a bank customer writes four checks in one day, many banks will clear the largest check first, even if it was written last.

Everyone benefits, is employed, and makes enough money to buy a $10 camera. -- 1stworld, on Slashdot
The economic impact of seven billion citizens joining digital society is vast and only just starting to be understood. Where this will take us is not clear. We can however already see the trends:
All markets have more participants. In any given area of activity, the number of people who participate and compete has greatly increased.
Rather than creating a race to the bottom, we see increasing specialization and diversity of suppliers, and lucrative new businesses constantly emerge.
All markets are more equal. The tools available to even the smallest players give them real power within their markets.
Smaller players are more educated and informed. The cost of getting information has fallen to near zero and today the size of larger players actively works against them.

As I mentioned earlier, by flooding the system with cash, the Federal Reserve’s quantitative easing program is also working to devalue the US dollar. A cheaper dollar is both good for US manufacturing, making goods cheaper at home and abroad, and punitive to foreign producers trying to crack the US market. In a job-hungry world, even free market–loving America is becoming more protectionist. Globalization’s so-called race to the bottom to capitalize on the lowest wage rate anywhere in the world is about to hit some big roadblocks in the static economy just ahead.
The contours of our economy are already changing, at least in North America. The lost manufacturing jobs of yesteryear are coming home. Over the next decade, manufacturing will account for a larger share of employment and a larger percentage of GDP. That shift is already apparent in the strength of the recovery in US manufacturing since the recession.

If the Sixth Mass Extinction is allowed to continue—or still worse, accelerate further—then the chance of a global-scale ecosystem collapse can only continue to grow.
THE PRICE OF PANDAS
The current crisis in biodiversity tells us loud and clear that conventional approaches to conservation have failed. “Paper parks”—named but barely protected—in developing countries are routinely violated by poachers and loggers. What areas are set aside for nature reserves are too small and too fragmented. At sea fishermen compete with each other in a global race to the bottom, knowing that if they do not catch the last bluefin tuna, someone else will. No wonder the 2010 Global Biodiversity Outlook report is full of ominous words and phrases like “serious declines,” “extensive fragmentation and degradation,” “overexploitation,” and “dangerous impacts.” To meet the planetary boundary, we need to make urgent changes in policy.
Biodiversity loss is fundamentally an enormous market failure, because the people that profit from destroying biodiversity are not generally the same people who lose out when the rain forests, mangroves, and coral reefs are finally gone.

Globally, even without the financial crisis, the arithmetic of ageing would have made it impossible for the existing financial system—of saving via pensions invested in the equity and debt markets—to go on serving the middle class.
Now however, the realization is dawning that the generation who started work in 2010, and who will retire in 2050, will have been poor through much of their working lives; they will be ‘asset poor’—unless the house-price bubble can be pumped up again—and dependent on a generation being born today to join the ‘race to the bottom’ in terms of wages and lifestyles.
10. This evaporation of a promise is compounded in the more repressive societies and emerging markets because—even where you get rapid economic growth—it cannot absorb the demographic bulge of young people fast enough to deliver rising living standards for enough of them.
11. To amplify: I can’t find the quote, but one of the historians of the French Revolution of 1789 wrote that it was not the product of poor people but of poor lawyers.

“Profit arises out of the inherent, absolute unpredictability of things, out of the sheer, brute fact that the results of human activity cannot be anticipated and then only in so far as even a probability calculation in regard to them is impossible and meaningless.”
Knight did not believe in the efficiency of markets, arguing instead that when companies operate for efficiency, and compete on price, profits tend to fall—and sometimes fall to zero. Put another way, efficiency drives a race to the bottom. Creativity, on the other hand, generates products and services that, because of their originality and utility, can have big profit margins and bigger profits.
For Knight, social uncertainty and chance were sources of new knowledge, opportunity, and profits. He was also keenly aware that focusing on “wants” alone was insufficient. “The chief thing which the common-sense individual actually wants is not satisfaction for the wants which he has, but more, and better wants,” Knight wrote.

Later we’ll explore how modelling the disappearance of labour value like this could translate into the actual design of strategies for transition; and how issues around energy fit in. For now, however, let’s look at how capitalism might evolve to meet these economic challenges.
WHAT WOULD INFO-CAPITALISM LOOK LIKE?
The rise of free information and free machines is new. But the cheapening of inputs through productivity is as old as capitalism itself. What stops capitalism from becoming a systemic race to the bottom is the creation of new markets, new needs, and raising the amount of socially necessary labour time used to meet these needs (fashion instead of rags, TVs instead of magazines); this in turn raises the amount of labour time embodied in each machine, product or service.
If this inbuilt reflex could work properly, faced with the information revolution, what we’d get is a fully fledged info-capitalism.

A typical extracellular electrophysiological recording of neural activity in tissue records electrical potential differences between one electrode placed in-tissue near the neural activity and a second electrode “far away.” This is not the case for our motes: both electrodes are on board the tiny device and are placed very close together. This makes it very hard to measure the tiny electrical changes that arise across these electrodes. To some extent, the tiny electronics can be made more sensitive by pumping in more power. This creates a race to the bottom: smaller motes capture less power but need more power to record the tiny signals. Somewhere around a 50 µm diameter, our calculations show you cannot deliver enough power to power the sensor electronics.
The second challenge involves simultaneous gathering and distinguishing information from multiple sensing sites. For functional neural mapping applications, which will likely require the full, digitized neural signal, each node will generate > 1 kbps of neural data that needs to be continuously streamed to the interrogator.

PDAs were on the rise, thanks to the success of handhelds like the Palm Pilot, but to Jobs, the Newton was a distraction. He wanted Apple to concentrate on computers, its core product.
Jobs aimed at making innovative products again, but he didn’t want to compete in the broader market for personal computers, which was dominated by companies making generic machines for Microsoft’s Windows operating system. These companies competed on price, not features or ease of use. Jobs figured theirs was a race to the bottom.
Instead, he argued, there was no reason that well-designed, well-made computers couldn’t command the same market share and margins as a luxury automobile. A BMW might get you to where you are going in the same way as a Chevy that costs half the price, but there will always be those who will pay for the better ride in the sexier car. Rather than competing with commodity PC makers like Dell, Compaq and Gateway, why not make only first-class products with high margins so that Apple could continue to develop even better first-class products?

“The art here, the experience of seeing it, that’s free. Anyone can walk in this place, look around, get it, and leave. The souvenir part—the experience part, the owning-the-table-for-two-hours part—that’s what they make money from.
“McDonald’s fooled us into believing that the purpose of industry was to churn out standardized quantity at low cost. This place reminds us that, no, there’s an alternative to racing to the bottom. And that is, racing to the top.”
Are you ready to race toward the top and combine money with meaning? Keep reading—the remaining stories and skills in this book show you how.
■ PORTRAIT OF THE ARTIST AS A YOUNG FUCKUP: HOW I WENT FROM BROKE, MISERABLE WANNABE SUPERSTAR TO FINANCIALLY SECURE, CREATIVELY ENGAGED PROFESSIONAL AUTHOR
I told you I wouldn’t recommend anything to you that I hadn’t applied in my own life.

To be impartial, I might mention the knee-breaking seat pitch and treacherous cuisine of EgyptAir and Royal Air Maroc, but exceptions like these are uncommon.
How we got to such a shameful position is the subject of debate. Is it a fiscal thing? A cultural thing? A little of both? It has been a long, hard slide, and most folks agree that it began at or around the moment president Jimmy Carter attached his signature to the Airline Deregulation Act of 1979. From that moment on it was a race to the bottom, with competitive chaos inspiring a battle so fierce that, from the airlines’ perspectives, undercutting the competition became more important than pleasing customers. By 2001, the few remaining extravagances were curtailed in the battening-down that began after September 11.
In my opinion, there’s something systemic at hand that transcends the bottom line. It is easy to assume that with a falloff in profits comes a falloff in the quality of your product, but what we have today is the nadir of a prolonged decline that was ongoing even through the mid-1990s—the airlines’ most profitable period in history.

is substituted for social protections (pensions, health care, protections against injury) that were formerly an obligation of employers and the state. Individuals buy products in the markets that sell social protections instead. Individual security is therefore a matter of individual choice tied to the affordability of financial products embedded in risky financial markets.
The second prong of attack entails transformations in the spatial and temporal co-ordinates of the labour market. While too much can be made of the ‘race to the bottom’ to find the cheapest and most docile labour supplies, the geographical mobility of capital permits it to dominate a global labour force whose own geographical mobility is constrained. Captive labour forces abound because immigration is restricted. These barriers can be evaded only by illegal immigration (which creates an easily exploitable labour force) or through short-term contracts that permit, for example, Mexican labourers to work in Californian agribusiness only to be shamelessly shipped back to Mexico when they get sick and even die from the pesticides to which they are exposed.

Commercial airlines aren’t the only ones reaping the benefits. In Memphis, Federal Express can add nine flight operations per hour, with annual savings of almost $22 million. Residents of Louisville, Kentucky, can breathe easier, knowing that arrivals at United Parcel Service’s central processing facility are burning 7,761 fewer gallons of fuel. In a world of low margins, scarce resources, and race-to-the-bottom competition, GPS is a powerful means to chip away at costs.
When Alaska Airlines began to use GPS in 1996, it was a watershed moment for the aviation industry and also for GPS, heralding its integration into what governments and security specialists call the critical infrastructure—an inclusive term that refers to the systems, installations, and industries that make modern life possible.

Bernhardt et al. found that 90 percent of white male workers in the most recent cohort are doing worse now than their counterparts at corresponding ages from the earlier cohort. Median wage growth has fallen by 21 percent, and the distributions of remaining gains have become more unequal. While a small core of the most recent cohort is holding its own, for the most part the net wage decline is a “race to the bottom” (Bernhardt et al. 2001, 174). The growth of income inequality in recent decades is not associated with individuals surging ahead but rather with a few holding on while most have lost ground. The small core of workers holding their own are mostly college graduates. But even here, nearly two-thirds of all college graduates in the more recent cohort fared worse than college graduates in the previous cohort.

Even though the United States doesn’t try very hard, and imposes needless barriers on itself, between 2005 and 2011 service exports rose more rapidly than goods exports did. And there’s room for much more. Rising wealth around the world means greater demand for services.
Developing countries build exports—goods or services—by taking the low road: set up a factory to make cheap lightbulbs or build a low-wage call center, and you’re off. But it’s not all about a race to the bottom. The United States exports a lot of very expensive services—money management, education, health care, tourism—that have previously been unaffordable for the vast majority of humanity and that are getting more affordable. Like the Collinses of Wallquest before 2008, most American businesses were content to sell to their friends and neighbors and never gave much thought to selling overseas.

This, along with our first proposal to avoid the
valuation in financial reports of nontraded assets/liabilities, will go a long
way to restore the reliability of financial information.30 And now for our
third and last proposal.
III. MITIGATE ACCOUNTING COMPLEXITY
Here is the Lev-Gu law of the dynamics of regulation: Regulatory systems
strive to be even more complex than the structures or institutions they
were charged to regulate. A race to the bottom, so to speak. If you doubt
the universality of our law, think of the 1,990 pages of the original 2009
Affordable Health Care Act (Obamacare), ballooning to about 20,000
pages four years later,31 or the Dodd–Frank Wall Street Reform and Consumer Protection Act, originally at 848 pages, and mushrooming to 13,789
pages as of July 2013 (and still going strong—the length, we mean).32 And
not only in America: No regulatory agency rivals the European Union in
scope, intrusion, and complexity of regulation.

The right loophole can always be found in one or other of the tax havens: if the company in the Seychelles can’t do it, then the Panamanian trust or the foundation in Bermuda probably can – or alternatively a combination of two, three or four of these elements. In our globalized world it seems there is hardly a single law that cannot be circumvented or have its impact lessened with the help of a few shell companies.
The British author Nicholas Shaxson sums this up rather neatly: ‘Offshore is not only a place, an idea, a way of doing things, and a weapon of the financial industry. It is also a process: a race to the bottom to where the rules, laws and outward signs of democracy are worn away little by little.’1 Used systematically, offshore offers an opportunity for an almost complete abdication of responsibility. It is very nearly impossible, we keep hearing in background discussions, for authorities to establish a chain of proof that holds up in court if the investigators come up against a network of shell companies strung out across five, ten or thirty tax havens.

This value-add could be based on quality, price, quantity, or perceived
value for the money. However, these strategies rarely worked for long, as the
competitor having a low barrier to entry simply followed successful differentiation tactics. For example, competitors could match quantity and up their
lot size to match or do better. Worse, if the price was the differentiator, the
competitor could lower their prices, which results in what is termed a race
to the bottom.
Selling Light, Not Light Bulbs
What the customer ultimately wants the goods for is to provide a service
(provide air transportation in the previous example), but it could also be to
produce light in the case of a light bulb. This got manufacturers looking at the
problem from a different perspective; what if instead of selling light bulbs, you
sold light?
This out-of-the-box thinking produced what is known as the outcome economy,
where manufacturers actually charged for the use of the product rather than
the product itself.

The problem is occurring in an open-access commons, an area no one owns and for whose stewardship no one is responsible. The classic examples are fisheries. Frequently they are an open-access resource that is being overexploited. If a fisher leaves a fish in the water to spawn, the next guy will catch it and sell it. Thus no individual fisher has the incentive to protect the health and productivity of the fishery. It’s a race to the bottom, with both fish and fishers losing out. Similarly, pollutants are pumped into rivers and into the air and tropical forests are chopped down because all too often anyone can use those resources without paying for the costs of the harm they cause.
One such commons problem I considered in my 1992 book was the “ozone hole” over Antarctica that was produced by chlorofluorocarbon (CFC) refrigerants floating up into the stratosphere.

It must also respect the particular character of the resource being managed and the people who have worked with that resource the longest. Managing a fixed supply of minerals is different from managing a replenishing supply of timber. Finally, size and place matter. It’s easier for a town to manage its water supply than for the planet to establish water-sharing rules.78
In short, a commons must be bound by people, place, and rules. Contrary to prevailing wisdom, it’s not an anything-goes race to the bottom. It is simply a recognition of boundaries and limits. It’s pooled, multifaceted investment in pursuit of sustainable production. It is also an affront to the limitless expansion sought by pure capital. If anything, the notion of a commons’ becoming “enclosed” by privatization is a misnomer: privatizing a commons breaks the boundaries that protected its land and labor from pure market forces.

For the last thirty years, America had the lowest corporate tax rates of the major industrialized countries. Today, it has the second highest. American rates have not gone up; others have come down. Germany, for example, long a staunch believer in its high-taxation system, cut its rates (starting in 2008) in response to moves by countries to its east, like Slovakia and Austria. This kind of competition among industrialized countries is now widespread. It is not a race to the bottom—Scandinavian countries have high taxes, good services, and strong growth—but a quest for growth. American regulations used to be more flexible and market friendly than all others. That’s no longer true. London’s financial system was overhauled in 2001, with a single entity replacing a confusing mishmash of regulators, one reason that London’s financial sector now beats out New York’s on some measures.

Vibrations from heavy generators used to provide standby electricity, essential on the subcontinent where there are power shortages and frequent outages, contributed to the collapse. Warnings were disregarded. There was reluctance to suspend production to avoid losses.
But the fundamental causes are more complex. In a globalized world, businesses seek out competitively priced raw materials, labor, and locations, to lower costs, enhance profitability, and offer reduced prices to consumers. Production migrates to emerging markets. There is a race to the bottom in costs and working conditions, as manufacturers compete for the business of foreign purchasers.
Lower costs come primarily from lower wages. In Bangladesh, the minimum wage is US$38 a month, with typical take-home pay of around US$65, among the lowest in the world. Benefits such as leave, retirement, or healthcare are minimal, if they exist at all. Lower costs also come from less stringent regulations governing workplace safety, industrial pollution, and waste disposal.

Rather, we invest in innovative technologies like Water<Less and processes like Wellthread that can be applied across multiple product lines, making sustainability a core design principle for all our products. We want to gradually build a rich design-for-sustainability toolkit that we would share with our suppliers, and even our competitors. The hypercompetitive apparel sector is known for its race to the bottom. We want to initiate a race to the top by uplifting the sustainability standards of the entire industry.
As well as saving on production costs, Levi Strauss’s sustainably designed products are generating greater customer goodwill and boosting employee morale. Employees in its stores – especially those in their 20s and 30s – rave about the Water<Less, Waste<Less and Wellthread products, which they find cool.

pages: 354words: 92,470

Grave New World: The End of Globalization, the Return of History
by
Stephen D. King

Being competitive globally threatens domestic labour standards, particularly in a world in which mobile capital hopes to seek out the cheapest pools of labour (ironically, TPP included an attempt to provide common labour standards). Bailing out banks for their far-flung misadventures leads only to austerity at home. Attempts to attract global capital can result in national tax authorities indulging in a corporation tax ‘race to the bottom’: indeed, corporate tax rates have plunged since the early 1980s.6 Accepting the strictures of the World Trade Organization may only preserve a decidedly skewed playing field, preventing today’s poor countries from using techniques employed by others in the past to foster economic progress. Without the use of protectionist measures to nurture infant industries, for example, it is unlikely that the nineteenth-century US economy or the East Asian economies of the late twentieth century would have made significant gains.

Congress might cut the U.S. corporate income tax rate to 12.5% to be competitive with Ireland. But then Switzerland, with its 8.5% rate, would still be a lure for chief financial officers looking to reduce the tax bill—not to mention Bermuda, New Zealand, and other countries where the corporate income tax rate is zero. And if the United States did agree to a large cut in the rate, other countries might well cut their tax rates even more sharply. This is a race to the bottom that nobody can really win.
How low does the tax rate have to go to stop corporations from devising intricate mechanisms to avoid paying? Great Britain, which reduced its corporate tax rate half a dozen times in the twenty-first century, now taxes profits at 20%. But that didn’t stop Starbucks from creating an intricate multinational network to avoid tax in Britain. Starbucks had more than eight hundred outlets in Britain in the second decade of the twenty-first century, and the company repeatedly told financial analysts that the U.K. business was “profitable.”

The Metropolitan Revolution: How Cities and Metros Are Fixing Our Broken Politics and Fragile Economy
by
Bruce Katz,
Jennifer Bradley

Conversely, the spectacular decrease in the progressivity of the income tax in the United States and Britain since 1980, even though both countries had been among the leaders in progressive taxation after World War II, probably explains much of the increase in the very highest earned incomes. At the same time, the recent rise of tax competition in a world of free-flowing capital has led many governments to exempt capital income from the progressive income tax. This is particularly true in Europe, whose relatively small states have thus far proved incapable of achieving a coordinated tax policy. The result is an endless race to the bottom, leading, for example, to cuts in corporate tax rates and to the exemption of interest, dividends, and other financial revenues from the taxes to which labor incomes are subject.
One consequence of this is that in most countries taxes have (or will soon) become regressive at the top of the income hierarchy. For example, a detailed study of French taxes in 2010, which looked at all forms of taxation, found that the overall rate of taxation (47 percent of national income on average) broke down as follows.

…

For the countries of Europe, the priority now should be to construct a continental political authority capable of reasserting control over patrimonial capitalism and private interests and of advancing the European social model in the twenty-first century. The minor disparities between national social models are of secondary importance in view of the challenges to the very survival of the common European model.35
Another point to bear in mind is that without such a European political union, it is highly likely that tax competition will continue to wreak havoc. The race to the bottom continues in regard to corporate taxes, as recently proposed “allowances for corporate equity” show.36 It is important to realize that tax competition regularly leads to a reliance on consumption taxes, that is, to the kind of tax system that existed in the nineteenth century, where no progressivity is possible. In practice, this favors individuals who are able to save, to change their country of residence, or both.37 Note, however, that progress toward some forms of fiscal cooperation has been more rapid than one might imagine at first glance: consider, for example, the proposed financial transactions tax, which could become one of the first truly European taxes.

Legislators had planned a big tax break for Massachusetts businesses generally, but restricted it to Raytheon and other “defense contractors.”
It’s an old story. Until the late 19th century, corporations were limited to functions explicitly determined by the state charters. That requirement effectively disappeared when New Jersey offered to drop it. Corporations began incorporating in New Jersey instead of New York, thus forcing New York to also drop the requirement and setting off a “race to the bottom.”
The result was a substantial increase in the power of private tyrannies, providing them with new weapons to undermine liberty and human rights, and to administer markets in their own interest. The logic is the same when GM decides to invest in Poland, or when Daimler-Benz transfers production from Germany, where labor is highly paid, to Alabama, where it isn’t.
By playing Alabama off against another competitor, North Carolina, Daimler-Benz received subsidies, protected markets and risk protection from “the people.”

The decision set the stage for one of the most frustrating years in Asness’s investing career. AQR also made misplaced bets on the direction of interest rates, currencies, commercial real estate, and convertible bonds—pretty much everything under the sun.
As the losses piled up, investors were getting antsy. AQR was supposed to hold up in market downturns, just as it had in 2001 and 2002 during the dot-com blowup. Instead, AQR was racing to the bottom along with the rest of the market.
In October and November Asness went on a long road trip, visiting nearly every investor in his fund, traveling in a private jet to locations as far afield as Tulsa, Oklahoma, and Sydney, Australia. For the rare down moments, he pulled out his Kindle, Amazon.com’s wireless reading device, which was loaded with books ranging from How Math Explains the World to Anna Karenina to When Markets Collide by Mohamad El-Erian, a financial guru at bond giant Pimco.

If Europeans find their shoes made cheaply in Vietnam, then they have more to spend on getting their hair done and there are more nice jobs for Europeans in hair salons and fewer dull ones in shoe factories. Sure, manufacturers will and do seek out countries that tolerate lower wages and lower standards – though, prodded by Western activists, in practice their main effect is then to raise the wages and standards in such places, where they most need raising. It is less of a race to the bottom, more of a race to raise the bottom. Nike’s sweatshops in Vietnam, for example, pay wages three times as high as local state owned factories and have far better facilities. That drives up wages and standards. During the period of most rapid expansion of trade and out-sourcing, child labour has halved since 1980: if that is driving down standards, let there be more of it.
The apotheosis of the city
Trade draws people to cities and swells the slums.

(The British government had to nationalize RBS in 2008 and spent billions to cover its loses; RBC in 2012 was one of the top twenty banks in the world, with a market capitalization of $74 billion.) A Canadian finance executive who spent the 1990s in Toronto, then moved to Asia, and now lives in London sheepishly recalls thinking: “Come on, guys, get in the game! The world’s changing.”
—
The regulatory race to the bottom between New York and London—and the plutocracy’s eager and misguided complicity in that contest—is an important cause of the 2008 financial crisis. But it is also a crucial episode in another story: the rise of the super-elite. Much of the story of the rise of the 1 percent, and especially of the 0.1 percent, is the story of the rise of finance. And less regulation, more complexity, and more risk are important reasons why finance has become a bigger part of so many developed Western economies, particularly the United States and the United Kingdom, and why financiers’ income has overtaken that of almost everyone else.

It's in their collective group interest for prices to remain high; they collectively make a greater profit if they all charge $6 for a sandwich. But by keeping their prices high, each of them runs the risk of their competitors acting in their self-interest and undercutting them. And since they can't trust the others not to do that, they all preemptively lower their prices and all end up selling sandwiches at $5 each. In economics this is known as the “race to the bottom.”
Societal Dilemma: Setting prices.
Society: All the merchants.
Group interest: Make the most money as a group. Competing interest: Make the most money individually, and in the short term.
Group norm: Keep prices high. Corresponding defection: Undercut the competition.
To encourage people to act in the group interest, the society implements a variety of societal pressures. Moral: The group encourages loyalty.

For example, Schwinn not only supported the same companies that eventually became its primary competition (notably Giant) and missed out on the opportunity to become a major player in both BMX and mountain bike production—its management apparently referred to the mountain bike as a fad—it also made a number of shrewd moves to avoid reinvesting in either its Chicago production plant or its experienced workforce.43 When Chicago Schwinn workers unionized under the UaW and went on strike in 1980, the company responded frostily and went on to close the plant in 1983, moving its equipment and engineers to the Giant Bicycle Company factory in Taichung, Taiwan.44 Schwinn proceeded to open a new manufacturing plant in Greenville, Mississippi, where it hired inexperienced bike makers for lower pay, in a facility located seventy-five miles from the nearest interstate highway.45 The plant lost more than $30 million and was closed in 1991, just one year prior to the company’s bankruptcy declaration.46
While Schwinn is now widely seen as a textbook case for how not to run a company in the so-called postindustrial era, its story is rarely used to highlight the negative impacts of globalization on the environment, on the U.S. workers who lose their jobs and trade unions, and on the multitudes of Mexican and asian workers who are subsequently and systematically exploited. rather, we are meant to see the company’s missed opportunities, lack of innovation, and brand deterioration as the hallmarks of its failure, as opposed to seeing the entire bicycle industry as a symbol of everything wrong with globalization and the corporate race to the bottom. indeed, one of the most symbolic events to highlight the negative effects of globalization on american workers took place at another bike factory in July 1998, when Huffy Bicycle Corporation, then largest in the United States, closed down its Celina, Ohio factory and fired the entire staff of nearly a thousand workers despite high overall sales that year (previous years were financially tumultuous).

He promised to supply land grabbers with workers at twenty-five cents an hour, which he boasted is less than half the rate in Indonesia, a seventh that in Malaysia, and a tenth that in Brazil. Land leases cost as little as two dollars per acre per year, he said. Water was free, and taxes virtually nonexistent. There were “no restrictions of foreign exchange; no limits on expat employees; full repatriation of profits, dividends and royalties and 100 percent foreign ownership permitted.” Competitors in the “race to the bottom” to play host for palm oil will find Sierra Leone already there.
The huge areas of forestland in the DRC, along with its good soils and year-round rains, make it another potential honey pot, as it was in the days of Lever Brothers. Elwyn Blattner, the New Jersey inheritor of the Blattner Group’s land assets, is as friendly with the country’s new rulers as he was with Mobutu, and still operates a rubber plantation and thousands of acres of oil palm across the country.

We need to know that an airplane will fly and that a nuclear power plant will not blow up. They cannot be tamed by trial-and-error learning when the potential for catastrophic losses means that the first error will also be the last trial.
Regulation creates the market. If financial products had been regulated like drugs – so they were tested before being introduced on the market – banks would have engaged less in a race to the bottom introducing ever more worthless financial instruments. The crash need not have been so severe. Credit-rating agencies, whose task was to provide the crucial gold standard of trustworthiness, failed. Regulators therefore have a role to play in the financial sector, sometimes expressing consumer preferences that are unrepresented in the current array of goods and services but are expressed through, say, elections.

The Securities and Exchange
Commission (created during the Great Depression) wants to assure
that investors understand how much risk they are taking on,32 but
the government itself does not want to be in the business of rating
and ranking investments.33 So the SEC registers private, for-profit
credit rating agencies (CRAs) to make such judgments by designating them as Nationally Recognized Statistical Rating Organizations (NRSROs).34 The CRAs Moody’s, Fitch, and Standard &
Poor’s (S&P) are the leading NRSROs.35 They rate investments
from the super safe (AAA) to the more speculative, and even—less
politely—junk.36
This “outsourcing” of regulation saved the government money
and headaches as long as the CRAs maintained integrity and competence.37 But both gradually eroded over time, accelerated by
their need to compete for the business of the very entities they
were rating.38 When bankers crafting mortgage-backed securities
began shopping around for the most pliable rater, the agencies’
commitment to objective statistical analysis began to show some
strain.39 Before 2005, an AAA rating was a prized asset; only about
1 percent of AAA-rated investments incurred a default.40 But a
Senate report in 2011 found that “90% of the AAA ratings given to
subprime residential mortgage-backed securities originated in 2006
and 2007 were later downgraded by the credit rating agencies to
junk status.” 41
Rating agencies furiously competed to rate the flood of securities
generated during the housing bubble. Like runaway “grade inflation”
that cheapens straight A report cards, rating inflation has eroded the
meaning (if not the value) of AAA ratings. There were plenty of
convenient rationales at hand: the U.S. economy was remarkably
strong, population rise meant housing prices could only go up,
computer-driven productivity would lift all incomes.42 The credit
raters were soon in a race to the bottom in laxity. As sociologist
Will Davies observes, those “tasked with representing, measuring and
judging capitalist activity are also seeking to profit from” it, and there
is little to connect probity in the former activities to prospering in
the present.43
110
THE BLACK BOX SOCIETY
Their crudity eventually captured media attention, as various
“gotcha” statements emerged. “Let’s hope we are all wealthy and
retired by the time this house of cards falters,” one internal e-mail
said.

Ultimately, income will not be taxed at all, freeing us from onerous record-keeping responsibilities and intrusive government monitoring.
4. ECONOMIC AND MONETARY LOCALIZATION
Motivation: As community has disintegrated around the world, people yearn for a return to local economies where we know personally the people we depend on. We want to be connected to people and places, not adrift in an anonymous global monoculture. Moreover, global commodity production puts localities into competition with each other, fomenting a “race to the bottom” in wages and environmental regulations. Moreover, when production and economic exchange are local, the social and environmental effects of our actions are much more obvious, reinforcing our innate compassion.
Transition and policy: The trend toward local economy has already started. Spiking energy costs and ecological awareness prompt businesses to source more supplies locally, and millions of consumers are awakening to the health benefits of locally grown, fresh food.

Therein lies one of the powerful benefits of globalization: Trade makes countries richer; richer countries care more about environmental quality and have more resources at their disposal to deal with pollution. Economists reckon that many kinds of pollution rise as a country gets richer (when every family buys a motorcycle) and then fall in the later stages of development (when we ban leaded gasoline and require more efficient engines).
Critics of trade have alleged that allowing individual countries to make their own environmental decisions will lead to a “race to the bottom” in which poor countries compete for business by despoiling their environments. It hasn’t happened. The World Bank recently concluded after six years of study, “Pollution havens—developing countries that provide a permanent home to dirty industries—have failed to materialize. Instead, poorer nations and communities are acting to reduce pollution because they have decided that the benefits of abatement outweigh the costs.”21
Climate change is a trickier case, in that carbon emissions are a zero-sum situation, at least in developing countries in the near term.

A drive to maintain or expand market share made the rating agencies willing participants in this shopping spree. It was also relatively easy for the major banks to play the agencies off one another because of the opacity of the structured transactions and the high potential fees earned by the winning agency. Originators of structured securities typically chose the agency with the lowest standards, engendering a race to the bottom in terms of rating quality. While the methods used to rate structured securities have rightly come under fire, in my opinion, the business model prevented analysts from putting investor interests first.
While all this was happening, the nation’s top financial cop, the chairman of the Fed, was averting his eyes. In a September 2007 interview with the CBS show 60 Minutes, Greenspan conceded that while he had been aware of widespread abuses in the subprime market, “I had no notion of how significant they had become until very late.

The Alberta Federation of Labour, for example, has fluctuated on the issue of migrant workers in the tar sands. Generally, they are opposed to migrant worker programs and have done commendable, extensive work to highlight the deplorable working conditions. But recently, in at least two high-profile incidents,5 they also spoke out against the “displacement” of Canadian workers by migrant workers in the tar sands.
This approach needs to be challenged, because it signals a “race to the bottom”: laying off union workers to bring in precarious labour is a way for the government and big business to dismantle workers’ rights across the board. If we don’t recognize the economic and social conditions that make migrant workers vulnerable in the first place, we further marginalize and isolate them with divisive rhetoric, which is also, frankly, quite entitled and racist. Union politics of “protectionism” in this era of austerity and scarcity mean that migrant workers of colour, rather than the state and capital, get scapegoated as the problem.

Solutions to improving working conditions should be applied globally, but examples of local action show how working life can be transformed – witness the scavengers of India or the young unemployed of Wales.
A worrying trend is that work will increasingly be stratified into well-paid empowering work for people with education and skills and the reverse for those without. Global competition can lead to a race to the bottom. Worse working conditions and cheaper labour costs make a country more attractive for transnational corporations. Highlighting the problem is a step towards addressing it.
I said in Chapter 5 that education was central because it provided the key connection between early life and the grown-up world of work. I could say the same here. Work is central because it provides the crucial link between earlier life and those older years, beyond working age, that are stretching ever further.

But there are good reasons to believe that the head of G4S, David Taylor-Smith, was right when in June 2012 he suggested private companies would be in control of large swathes of the police within five years. The rationale of Britain’s police force from the beginning was ‘policing by consent’. Now, Britain faces the prospect of police forces policing by consent of their shareholders rather than their communities.
The logical end result of the Establishment mantra is a race to the bottom in the quality of service and the rights of workers. After all, companies slicing off chunks of the public sector are driven by one thing: profit. And there are few better methods of boosting their profit streams than slashing workers’ wages and undermining their terms and conditions. Like other current working contractors, Terry Williams cannot give his real name when talking about his job, because if he does so he risks losing it.

Economists Rachel Heath of the University of Washington and Mushfiq Mobarak of Yale University estimate that around 15 percent of Bangladeshi women between the ages of sixteen and thirty are employed in the garment industry. They find compelling evidence that women’s employment in the garment industry has had a significant positive effect on reducing fertility rates, delaying marriage, and increasing girls’ educational attainment.14
Although some fear that global integration creates a “race to the bottom” with falling wages, the increase in investment and economic activity more typically has led to rising wages—fairly significant rises. The wage increases are largest in “tradable” sectors: firms that have integrated into world markets by exporting or competing with imports. According to the World Bank, wages in traded goods and services for both unskilled workers (such as sewing machine operators) and skilled workers (chemical engineers) have risen by 60 percent in real terms since the mid-1990s.

‘American investment banks then snapped up all the British banks that then directed those American pools of money that were outside of America in London.’
London was clearly far more than the financial equivalent of George Orwell’s ‘Airstrip One’. But seeing the City as essentially a part of Wall Street is a useful way of looking at the boom and the bust. It did seem as if London was where Wall Street did its dry-cleaning. There can be no doubt that the UK FSA started the race to the bottom on lenient treatment of derivative exposures. It boasted about the business won through this approach. Wall Street regulators tried hard to keep up. David Cameron himself, in a speech to the City after the crisis began in March 2008, fully endorsed the strategy of outcompeting Wall Street on deregulation. ‘The UK has a long history of benefiting from over-regulation elsewhere,’ he told his audience.

Many labor unions, particularly in the dominant countries, protest the fact that the mere threat of the mobility of capital—the threat, for example, of moving production and jobs to another country where state regulations and/or labor costs are lower and more favorable—can convince states to abandon or temper their own regulatory powers. States conform to and even anticipate the needs of capital for fear of being subordinated in the global economic system. This creates a sort of race to the bottom among nation-states in which the interests of labor and society as a whole take a backseat to those of capital. Neoliberalism is generally the name given to this form of state economic policy. Neoliberalism, as we claimed in part 2, is not really a regime of unregulated capital but rather a form of state regulation that best facilitates the global movements and profit of capital. Once again, in the era of neoliberalism, it might be helpful to think of the state as the executive committee assigned the task of guaranteeing the long-term well-being of collective capital.

But they also all want to take just slightly less vacation than each other, to be perceived as more loyal, more committed, and more dedicated (hence more promotion-worthy). Everyone looks to the others for a baseline, and will take just slightly less than that. The Nash equilibrium of this game is zero. As the CEO of software company Travis CI, Mathias Meyer, writes, “People will hesitate to take a vacation as they don’t want to seem like that person who’s taking the most vacation days. It’s a race to the bottom.”
This is the tragedy of the commons in full effect. And it’s just as bad between firms as within them. Imagine two shopkeepers in a small town. Each of them can choose either to stay open seven days a week or to be open only six days a week, taking Sunday off to relax with their friends and family. If both of them take a day off, they’ll retain their existing market share and experience less stress.

To strengthen its nonfunctional equity markets, China has outsourced raising capital for its banks to Hong Kong and Singapore. And to deal with vast nonperforming assets resulting from years of reckless lending, it allows major foreign banks to buy ever-larger stakes—and thus share the risk while using their expertise to clean up the mess.23
China benefits from foreign know-how, and the first world sweats to keep up. In the past foreign firms subcontracted only low-wage component assembly to China, but the “race to the bottom” is over: China now competes with first-world Singapore and Taiwan for electronics assembly and modular manufacturing. Germans workers now put in overtime to compete with the very Chinese workers they once trained—that is, if their entire design and manufacturing units have not already been moved to China. China has even reverse-engineered European weapons and then dumped the supplier.24 Shanghai Automotive may eventually put both General Motors and Volkswagen out of business in China, upgrading its models with their technology and then selling its cars for less—soon in the United States.

To the optimists I mention the obvious: endless deficits, massive wastage of lives and wealth in wars, political subsidies (pork, bailouts, corporate welfare, paying the able-bodied not to work), and destructive partisanship in all three branches of government. Meanwhile, the rise of China is transforming the geopolitical and economic landscape.
One of the most ominous and underappreciated threats to our future is in education and technology. My own state of California is a leader in the race to the bottom. The anti-tax movement has starved the state of revenue, especially the educational system. The ten campuses of the University of California, once among the finest public systems of higher education in the world, raised tuition to $12,000 a year by 2015. When I was a student in 1949 it was $70, which is like $700 today, adjusting for inflation. A good education was available to any qualified student.

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The Upstarts: How Uber, Airbnb, and the Killer Companies of the New Silicon Valley Are Changing the World
by
Brad Stone

A few months later, on February 1, 2016, a few hundred Uber drivers gathered in front of the company’s offices in Long Island City to protest the latest round of UberX fare cuts. Uber had recently reduced its fares by 15 percent in many cities, part of its annual effort to stimulate demand during the winter slowdown and increase the frequency of rides (and, no doubt, to apply further financial pressure to its domestic rival Lyft). NO ONE WINS THE RACE TO THE BOTTOM! read one sign. GIVE US THE RATE BACK. SHAME ON UBER! read another.
The drivers that day in Queens were angry about what now seemed like a sub-minimum wage, about Uber’s ever-increasing commission, and about the need to work longer hours to eke out a living. Uber promised to pay drivers a minimum hourly rate if their earnings fell below a certain level, but the drivers said that the company found a myriad of ways to disqualify them from the guaranteed wage.

(Half of India’s states show complete or
near-​complete dominance of chief ministers.)54 More untied revenue may
simply increase their capacity to indulge in populist giveaways. There are
large variations in the quality of governance in different states. It is possible that differences in state performance will be exacerbated by the movement of resources to the better-​performing states. A competitive ‘race to
the bottom’ in giving concessions to attract investment is another danger.
It seems obvious, therefore, that ‘competitive federalism’ needs to be balanced by ‘cooperative federalism’ to coordinate the policies of the states,
and see to it that they do not act at cross-​purposes. (Radical programmes,
such as the ‘deep fiscal adjustment’ that I have advocated, would require
centre-​states cooperation of a high order.)

Some criticize the outsized clout in the WTO of the multinational corporations in agribusiness, pharmaceuticals, and financial services.3 The WTO exercises too much caution, others say, in its enforcement of quarantines designed to protect humans, animals, and plants. Caution seems to abound; many of the WTO’s accords for cutting tariffs won’t go into effect for another twenty years.
Within the European Union and the United States there are plenty of critics of the World Trade Organization as well. Organized labor resists heartily having to compete with low-wage labor around the world. The race to the bottom by international corporations has prompted a vigorous campaign to include labor standards in future WTO accords. Opponents to this campaign say that the WTO can’t take up every good cause supported by Westerners. Considering that labor is central to all production, its concerns hardly seem peripheral. Libertarians resent the active role given to a highly bureaucratized international organization (France alone has 147 people working at the WTO).

The disastrous track record of the past three decades of neoliberal policy is simply too apparent. Each new blast of statistics about how a tiny band of global oligarchs controls half the world’s wealth exposes the policies of privatization and deregulation for the thinly veiled license to steal that they always were. Each new report of factory fires in Bangladesh, soaring pollution in China, and water cut-offs in Detroit reminds us that free trade was exactly the race to the bottom that so many warned it would be. And each news story about an Italian or Greek pensioner who took his or her own life rather than try to survive under another round of austerity is a reminder of how many lives continue to be sacrificed for the few.
The failure of deregulated capitalism to deliver on its promises is why, since 2009, public squares around the world have turned into rotating semipermanent encampments of the angry and dispossessed.